% if not session("Auth") then response.redirect("suf.php") end if %>
PARCO TO INCREASE INDIGENOUS SUPPLY OF POL PRODUCTS
The joint venture will constitute 40 per cent of the total refining capacity in the country
By SHABBIR H. KAZMI
Aug 28 - Sep 03, 2000
Pak Arab Refinery Company Limited (PARCO) is expected to commence commercial production in September 2000. The project is a joint venture between the Government of Pakistan (GoP), International Petroleum Investment Company of Abu Dhabi and OMV of Austria. While the GoP has 60 per cent stake the others jointly have 40 exposure in the Company. The refinery is located at Mahmood Kot, 900 kilometers north of Karachi.
With a capacity of 4.5 million tonnes per annum, the project will constitute 40 per cent of the total refining capacity in the country. The refinery is designed to process imported light crude oil as well as local crude oil. Light crude oil will be imported from Abu Dhabi and Saudi Arabia. The finished product mix of the refinery may vary with the regulatory environment and demand-supply scenario.
Products ('000 m tpa)
Others (including non-energy)
Source: OCAC report
Refining Capacity in Pakistan
Source: OCAC report 1999
At present, local refineries cater to around 39 per cent of the total POL demand (16.67m tonnes). With the addition of PARCO, the indigenous supply of refined products will further increase to 65 per cent of total consumption. This addition will also make the country self-sufficient in meeting motor spirit demand which during the first 10 months of the current fiscal year has been 0.9 million tonnes (constituting around 7 per cent of the total oil products demand). The country will also have a surplus refining capacity of Kerosene and HOBC.
PARCO has signed a joint venture (JV) agreement with TOTAL — the French oil giant — to market its products under the brand name of TOTAL-PARCO. Total's stake in the JV will be 60 per cent. The initial investment in the JV will be US$ 20 million which is expected to gradually increase to US $ 100 million. TOTAL will be eligible to market 25 per cent of the refinery's product.
The entry of TOTAL in Pakistan will not only pose a threat to the existing oil marketing companies (OMCs) in terms of reduced market share in energy products but will also imply greater competition in the most lucrative segment of the non-energy lubricants business.
PARCO will be able to cater to 26 per cent of the total POL product demand in the country. The 25 per cent quota allocation to TOTAL means that the JV will be able to capture 6.5 per cent of the market share in energy products. Since the total demand for POL products has been stagnant at current levels (owing to economic slowdown), TOTAL's allocation will imply a cut in the shares of the existing OMCs. TOTAL will benefit from the distribution infrastructure of PARCO.
TOTAL, at present is selling lubricants in Pakistan through independent dealers. Although the exact market share of TOTAL is difficult to identify, the aggregate non-OMC share in the lubricants market is around 40 per cent. With a well developed retail infrastructure, the current share of TOTAL can increase significantly as it will allow greater access to transport related demand which accounts for 38 per cent of total lubricants demand. Greater competition in this segment will significantly affect OMCs' profitability both in terms of a reduction in margins and market shares.
Implications for PSO and Shell
The entry of TOTAL into the local market indicates the opportunities available for foreign investments in the industry. The JV and potential investment by other foreign players, will pose a serious threat for Shell Pakistan than for Pakistan State Oil (PSO). At present, Shell has been following an aggressive marketing strategy. Capitalizing on its international brand image, Shell has gradually increased its share in the POL market. Shell's major competitor has been PSO, which although a large player in the market had been gradually losing market share owing to lack of proactive marketing strategy. However, TOTAL will bring with it, its own brand of international repute. With PARCO's infrastructure, this multinational can quickly capture a lion's share of the market.
With a major investment in energy sector by the foreign investors, the prospects for privatization of PSO brightens. Privatization through foreign investment will help arrest the downward drift in the market share of the Company. A brand enjoying international reputation coupled with PSO's infrastructure can pose a threat to Shell in Pakistan.