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Bosicar refinery to commence operations in September 2001

By SHABBIR H. KAZMI
 Dec 04 - 10, 2000

Bosicar Pakistan's refinery, having a designed capacity to refine 30,000 barrels per day (BPD), is expected to commence commercial production by September 2001. However, it will be capable of refining 35,000 BPD depending on the quality of crude oil being used. It has already concluded purchase agreement with Pakistan State Oil Company (PSO).

Marine Services Group has been involved in transportation of crude oil. The Group realized that during 1980-1992 period there was no significant increase in crude oil import by Pakistan. Whereas import of finished products has been growing around 9 per cent per annum. Supply and transportation of these products have been managed by the same company.

In 1994 the Group decided to establish a refinery in Pakistan. The industry standard is 100,000 BPD. However, in the US subsidy was paid to refineries having less than 50,000 BPD which expired in 1998. Therefore, a number of such refineries closed in the US as well as in Europe. The scenario offered the Group an opportunity to re-locate one of such refineries to Pakistan. This was mainly to save foreign exchange and to optimize cost.

The four basic parameters for the selection of a closed refinery were: the project cost should not exceed 50-60 million US dollars, the plant should not be more than 15-18 years, it should not be located in coastal areas and capacity should range between 25,000 to 40,000 BPD. The Group selected one unit out of 8 refineries short listed initially.

The selected refinery was designed in 1975. Its construction started in 1977, commercial production commenced in 1979. It was closed down in 1993. Marine Group made the down payment in 1995 after conducting produce simulation test and examining overall condition of plant and machinery. In oil refining industry a usual practice is to completely shutdown a unit after 12 to 18 months. Therefore, it was much easy to undertake product simulation test.

The Group achieved financial close in 1999. It was based on 60 per cent equity and 40 per cent debt. The other financial details indicate the estimated cost of the project around Rs 2 billion. Out of this Rs 100 million will be contributed by the Marine Group, Rs 130 million by foreign investors and Rs 600 million has been arranged under suppliers credit. As regards debt, one-third of this has been raised locally and two-third arranged from outside Pakistan. The local debt mainly comprised of lease finance. The fund providers include, Habib Bank Limited, First Grindlays Modaraba, Paramount Leasing, First Leasing, Security Leasing and Network Leasing, etc.

A typical refinery is capable of producing LPG, middle distillate and heavy distillate. Depending on the demand and plant capabilities local refineries usually prefer to export naphtha and Bosicar is expected to follow the same practice. After the commencement of Pak Arab Refinery, Pakistan has surplus production of certain products. Export of naphtha helps the country in reducing its import bill.

Naphtha is mother of petro-chemicals. Over a quarter of century, Pakistan has not been able to establish a naphtha cracker unit despite various efforts. With the establishment of PSF manufacturing units in last decade and expected expansion in the coming years, there is a need for establishing naphtha cracker unit in the country. Since the project is capital intensive, one may not see creation of such a facility even in the distant future.

However, looking at the prevailing refining capacity in the country and plan of Iran Pakistan Refinery, it may not be wrong to make fresh efforts. However, to raise funds, both equity and debt, for such a unit not only commitment by the GoP is needed but creation of investment friendly climate is a must. While it is necessary that efforts of Marine Group to establish a refinery in the country should be appreciated, other Pakistani sponsors should also try to follow the footprints of Bosicar and try to bring in second-hand refining plants to Pakistan.