Groundbreaking Ceremony Of Khalifa Refinery Project To Be Held By End 2019 : Omar Ayub Khan

[niaz]

Sir from what i understand is that large scale refining is economically not feasible in Pakistan.Than why do Foreign investors especially Gulf and Middle Eastern investors(even Chinese) offer to invest in this sector from
time to time

Here are some links upon which i had based my previous post

https://www.thefreelibrary.com/Snags+in+increasing+the+oil+refining+capacity.-a019446424

https://www.thefreelibrary.com/Oil+Refining+in+Pakistan.-a063299470

https://www.thefreelibrary.com/Oil+refining-a010555456

https://fp.brecorder.com/2011/12/201112241264409/

https://fp.brecorder.com/2006/07/20060708448704/

https://www.dawn.com/news/197824

https://www.dawn.com/news/213190

https://www.dawn.com/news/244039/kuwait-to-invest-in-refinery-lpg-terminal-at-gwadar

Even Indians Came

https://www.dawn.com/news/352223


These do not include KCR and the multiple Chinese offers in this sector

What attracted these investors???Was it guaranteed returns and other generous incentives or some genuine market potential that they saw

Offer to invest is one thing, it is like signing the MOU but the actual allocation of funds for the project is another.

Economics is based on certain assumptions such as how much of the volume will be sold at the inland market at what price and how much of it will be exported and at what price. Since the average life of a refinery is about 20 years, one has to forecast the revenue from the next 20 years and work out the expected rate of return at present value (Discounted Cash Flow Analysis). I don't know what assumptions were used to justify the investment when the offers were made, maybe it was never carried out as things did not progress beyond the offer.

For me, proof of the pudding is in the eating. Let us look at the existing refineries:

Attock oil was based on the indigenous crude. It was uneconomic to bring the crude all the way down to Karachi for export, hence Steel Bro's, a Scottish company invested in a small refinery in the early 1900s.

Next refinery was the PRL, it was a JV between Pakistani entrepreneurs and 3 foreign oil companies (Esso, Burmah Shell & Caltex) on a 40/60 basis built in the early 1960s. Crude was at that time only $1.60 per bbl and if I remember correctly, the Rate of Return was around 18%. Refinery supplied the white products to GOP at import parity price, excess black oil (Furnace oil) and light naphtha were exported.

National Refinery was an investment by the Pakistanis in the mid-1960s who also formed the PNO (Pakistan National Oil- taken over by ZA Bhutto PP during the 70' and merged with ESSO to form the PSO)) to market its products in the local market.

After that only foreign investment in Pakistan was in PARCO. Bosicor is a Pakistani venture, Alghurair from Dubai never completed their refinery. It took 12 years before Khalifa Point refinery construction could start. If the refining sector was so profitable, why aren't there many more foreign investments in the refining since 1974 when Parco was incorporated?

However, these are my views, no one has to agree with me. I see no point in carrying the debate as it is leading nowhere.