Home / Interviews / Modern refineries, incentive-laden policy for downstream firms can help boost investment and POL products export
Modern refineries, incentive-laden policy for downstream firms can help boost investment and POL products export

Modern refineries, incentive-laden policy for downstream firms can help boost investment and POL products export

Interview with Mr Mumtaz Hasan Khan – Chairman, Hascol Petroleum Limited

Profile:

Mumtaz Hasan Khan, Chairman of Hascol Petroleum has over 54 year experience in the oil industry. He started his professional life in Burmah Shell oil storage and distribution company in May 1963 and worked there till January 1976, where his last assignment was International Sales Manager. From February 1976 to July 1980 he served as Managing Director, Pakistan Services Limited, which was the owning company of four Intercontinental Hotels in Pakistan. In August 1980 he moved to London to start his own oil trading business and established Hascombe Limited, which started trading in crude oil and petroleum products and was a major supplier of petroleum products to Pakistan in the 1990’s. Hascombe bought crude and products from Middle Eastern sources and sold to major international trading companies like Shell and Elf. Under his leadership Hascol has been granted an oil marketing license in 2005 by the Government of Pakistan. He is also a Trustee of the Foundation of Museum of Modern Art (FOMMA) and is on the Board of Pakistan Refinery Limited. Mumtaz Hasan Khan was a member of the Expert Energy Group which prepared the country’s first Integrated Energy Plan in 2009.

About the company:

Hascol Petroleum Limited is the second largest oil marketing company of Pakistan engaged in storage and sale of petroleum products as well as FUCHS lubricants. The Company was granted oil marketing license by the Government of Pakistan in February 2005 and since then, it has been engaged in developing a retail network under Hascol brand and have commissioned over 490 retail outlets in the four provinces of Pakistan and Azad Jammu and Kashmir. Hascol has become a member of the highly esteemed listed companies of Pakistan Stock Exchange and its share price has appreciated considerably since the listing in 2014, keeping in pace with the phenomenal growth of the company. This massive growth has been made possible due to the strategic vision of the Board and excellent execution by Senior Management. Hascol has made major headway in constructing storage facilities at Keamari, Daulatpur, Shikarpur, Mehmood Kot, Sahiwal, Machike and Amangarh. New storage facilities are planned for Kotlajam and Thalian. In 2016 Vitol, the largest independent oil trading entity in the world, had taken 15% equity in Hascol and has now exercised the option to take 10% more, taking its shareholding to 25%. This will make Vitol the single largest shareholder in the company. Hascol has set up an LNG marketing company VAS LNG (Pvt.) Limited in a joint-venture with Vitol. Hascol will have a 30% stake in this company and Vitol 70%. Hascol has also signed a Technical Services Agreement with Vitol Aviation. This will enable Hascol to start fuelling aircrafts at Karachi, Lahore and Islamabad airports in the country. A new joint venture company, Hascol Terminals Limited, has also been set up with Vitol and it is planned to have 200,000 tons storage capacity at Port Qasim, near Karachi. Hascol had received a credit rating of ‘A+/A-1’ (Single A Plus /A-One) from JCR-VIS Credit Company Limited in 2016.JCR-VIS Credit Rating Company Limited (JCR-VIS) has upgraded the entity ratings of Hascol Petroleum Limited (HPL) to ‘AA-/A-1’ (Double A Minus/A-One) from ‘A+/A-1’ (Single A Plus/A-One). Rating of Hascol’s secured Sukuk issue of Rs2 billion has also been upgraded to ‘AA’ (Double A) from AA- (Double A Minus). Outlook on the assigned ratings is ‘Stable’. 

Following are the excerpts from an exclusive interview with Mumtaz Hassan Khan (MHK).

PAGE: Tell us briefly the success story of Hascol.

MHK: I thank Almighty Allah for the success of the company, which has a very brief but eventful history. As of today Hascol enjoys the status of second largest oil marketing company of Pakistan that control nearly 11% of the total market share. It also has the second largest storage capacity after state-owned Pakistan State Oil Company (PSO). The number of our outlets is inching close to 500 with the largest number of outlets located in Punjab, followed by Sindh. We are in the process of establishing Hascol Terminal that will have 200,000 tons storage capacity at Port Bin Qasim. It is estimated that the terminal would be 50% ready by July next year.

PAGE: Why Pakistan has not been able to construct strategic reserves storage facility?

MHK: Over the years, planners have not been able to come up with ‘downstream’ policy that governs supply chain. Ideally Pakistan should have minimum 45 days strategic reserve facilities but at present not even 20 days requirement can be stored. In my humble opinion construction of strategic reserve storage facility is the responsibility of the government. It is neither feasible nor economical for oil marketing companies to construct such huge facilities. Whatever limited facilities exist, these are owned by oil marketing companies. It is high time the Government of Pakistan come up with appropriate policies and incentives that can improve efficiency of the entire supply chain and increase storage infrastructure.

 

PAGE: Will deregulation of pricing facilitate in improving the performance of oil marketing companies?

MHK: The government has partially deregulated oil pricing system and it is expected that oil marketing companies will be given the complete liberty to fix the prices of POL products. Interestingly, all the products are imported as per the specification announced by the government. The unloading from ship just can’t be done unless the representative of Hydrocarbon Institute certifies that the product is as per the specifications. Having said that I will stress that Ministry of Petroleum has not set any standard for manganese and there could be some difference in the specifications of products being sold by various oil marketing companies.

PAGE: It is often said that prices of locally produced refineries are high as compared to the imported one. What could be the possible reasons?

MHK: Without mincing words, I would say that refineries operating in Pakistan are based on technologies of sixties. At the best these could be termed simple distillation units and produce the largest quantity of furnace oil. In the international markets, furnace oil is often sold below the price of crude oil. Therefore, government has to give subsidy to the refineries to make them profitable. PARCO is establishing now a state-of- the- art refinery at Khalifa point, which will have zero output of furnace oil. Pakistan needs to have two more refineries of 300,000 barrels per day each. Other refineries will have to undertake BMR to remain competitive. I will refer to quote our own example, 80% of total products sold are imported and only 20% is procured locally.

PAGE: How can Pakistan attract foreign investment in refining industry?

MHK: The government has been offering incentives to industries like textiles and clothing, fertilizer and sugar but hardly any incentive is offered to downstream oil industry. To establish a modern refinery of 300,000 barrel per day over US$6 billion are required. Therefore, the sponsors need certain sovereign guarantees. The sponsors are not asking for any extra favor but demanding the incentives being offered to independent power plants (IPPs). The other point that does not encourage investors to establish refineries in Pakistan is the circular debt menace. However, it is necessary to point out that the largest amount of circular debt pertains to furnace oil. The recent exercise of transferring power generation to LNG has helped the government in saving millions of dollars. However, closing down oil fired power plants is not advisable. Switching to an alternative fuel needs money and time and you need share capacity in case of supply disruptions.

PAGE: Can POL products be exported from Pakistan?

MHK: Let us be very clear that Pakistan is a net importer of many POL products and will continue to be net importer for a long time. While the country produces exportable surplus of some products like Naphtha, their export are limited. At the best Pakistan can export some products to Afghanistan but due to law and order problems the potential has not been exploited as yet. Pakistan can only export POL to neighboring countries once we have surplus refining capacity. This can’t be achieved without establishing refineries based on the most modern technology. Therefore, I suggest the government to come up with incentive-laden policy for downstream oil companies.

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