KHALIFA COASTAL REFINERY -A GIGANTIC VENTURE

MARIAM NASIR
Manager Research
Oct 22 - 28, 2007

Khalifa Coastal Refinery Limited has been incorporated in 2004 to start its business in the sector of Petroleum Oil Refinery & building up an offshore facility at Gaddani for the import of Crude Oil & Fuels and also to export some of the refined surplus products to other countries. It is a 13m tons oil refinery project and the refinery would be established as a joint venture by the Abu Dhabi-based International Petroleum Investment Company (IPIC) and Pak-Arab Refinery Company (Parco) with equity participation of 75% and 25%, respectively. Out of IPIC's 75 per cent stake, half of the stake would be retained by IPIC while the remaining half to be taken over by other UAE government institutions including companies from the Emirates of Abu Dhabi and Dubai. IPIC was created in 1984 as a 50-50 venture between ADIA and the Abu Dhabi National Oil Co. (ADNOC) to focus on oil-related acquisitions overseas while PARCO is a fully integrated energy company and considered to be the leading player in the industry. It is one of the largest companies of the Pakistani corporate sector with an asset base approaching Rs.100bn. The project will be employing 800 to 1,000 professionals directly and benefit another 2,000 families indirectly.

The project would be completed and commissioned by the first quarter of 2011. The refinery is to be dismantled & relocated from North America to Pakistan for further installation & operation. The proposed refinery will produce energy fuels out of Arabian & Persian Crudes. The refinery would be a state-of-the-art deep-conversion project with hydrocracker and delayed cocker facilities and would produce high quality middle distillates and other value added products and would not produce furnace oil and hence overcome diesel deficit which currently stands at about 4.5 million tons per annum. The Coastal Refinery Limited plant site is located at Hub, Balochistan near Gaddani Coastal Area. Coastal Refinery Limited has started Pakistan's first of its kind SPM Offshore Project to be installed at Khalifa Point near Gaddani Coastal areas. The Single Point Mooring Project will be utilized for the supply of Crude Oil from neighboring countries through an oil tanker. The work on a US$60m Single Point Mooring (SPM) floating jetty project has started with the completion due in October of this year. Once completed it will allow larger tankers to load and unload crude oil and other oil based liquid cargo to a storage area at the coastline, which can then be pumped through a pipeline directly to the oil refinery. The project is a joint venture between the Coastal Refinery Ltd and Bosicor Pakistan Ltd. The Single Point Mooring is a first project of its kind in the country. The Oil tanker to be offload thru this SPM project will carry a capacity of 120,000 tons to 200,000 tons of crude oil.

GOVERNMENT INCENTIVES FOR THE REFINERY

The Economic Coordination Committee (ECC) approved tax exemptions package including 20 years tax holiday for the proposed Khalifa Coastal Refinery. However, the government has refused to ensure the guaranteed rate of return to the investors arguing that the refinery would be established on commercial basis. Under the tax exemptions package, the ECC also approved waiver of five per cent WPPF (Workers Welfare Profit participation Fund) under the Companies Profit Act, for the refinery. In addition, the meeting also waived 0.5 per cent development surcharge under the export processing zones. These incentives will be applicable to all the refineries or petrochemical projects planned along the coastal belt of Balochistan, particularly Gwadar. There will be no restrictions on import of crude oil for the refinery, the crude oil imports would also be exempted from customs duties however taxes (all other incidental charges associated with the import) will be applicable. The ECC meeting has also reduced the customs duty on import of bitumen from 15% to 5% keeping in view the increasing construction activities in the country.

REFINING CAPACITY OF PAKISTAN AND ITS FUTURE OUTLOOK

Pakistan's energy scene presents a nightmare. Demand is growing at a runaway rate in non-productive sector, while the productive sectors are stagnating, the fuel import bill is mounting at a rate that it would exceed our total export earnings. Infrastructure to transport fuel products is inadequate and is on the verge of breakdown. Refinery capacity is insufficient to meet the demand. The current refining capacity of Pakistan by virtue of sum of seven companies i.e. Pak Arab Refinery Company, National Refinery, Pakistan Refinery, Attock Refinery, Bosicor Pakistan, Dhodak Refinery and Enar Petrotec is 12.86m tons. After the new refinery comes online by 2011, the overall refinery capacity of Pakistan would cross 25m ton as it would be the biggest refinery of Pakistan. PARCO s 100,000 BPD, state-of-the-art Mid-Country Refinery at Mahmood Kot, completed at a cost of US$886m, represents more than 40% of the indigenous refining capacity of the country. Currently, it is the highest oil refinery in Pakistan amounting to 4.5m tons followed by National Refinery at 2.8m tons and Pakistan Refinery at 2.15m tons. After the completion of Khalifa Refinery, the UAE group would have a capacity to refine about 17.5 million tons (including 4.5 million tons of Parco) of petroleum products in a total refining capacity of 25.5 million tons, compared with just eight million tons capacity of all the remaining five refineries. After successful completion and commissioning of Khalifa Coastal Refinery it would give a major boost to the refinery capacity of Pakistan.