Analyst Briefing: PRL seeks to take advantage of incentives offered for upgradation projects

July 9, 2021 (MLN): Pakistan Refinery Limited (PRL), recently conducted a corporate briefing session, apprising investors of the future business outlook whilst also highlighting the financial and operational performance of the company during 9MFY21.

To recall the company posted a Profit after Tax of Rs621mn (EPS: Rs1.03) during 9MFY21 as against a loss of Rs6.77bn (LPS: Rs16.69) during the same period last year. As per the management, earnings primarily improved due to better product mix, incorporation of exchange gain by the new pricing mechanism, and change in pricing policy to fortnightly from monthly.

During 9MFY21, the company procured 30% of the crude from KPC, 26% from ARAMCO, 21% from ADNOC, and 13% from local. In terms of product mix, the company produced 49% of HSD, 21% of MS, 19% of HSFO, 6%, and 4% of Naphtha and Jet Fuel/Kerosene.

As per the key takeaways of the briefing covered by Arif Habib Limited, the company informed that 50% of petroleum products are produced locally, while the rest of the 50% is imported. Amongst the local producers, the company has a market share of 6%, while PARCO leads with a 15% market share.

During 3QFY21 the refining margins remained under pressure owing to 3rd wave of COVID-19. The management informed that intercity pipelines in Karachi connecting Refinery at Korangi Creek to Keamari terminal were disrupted by unusual rain in Aug’20. As a result, the refinery remained closed for 12 days and resumed production from 9th Sep’20. After laying of pipelines below the riverbed, the lines were fully restored in Jan’21.

With regards to Refinery policy, which is yet to be approved by the cabinet, management was of the view that it will support refinery companies’ up-gradation projects. The company believes that the new refinery policy will make the sector financially sustainable and the up-gradation of new projects more economical.

In order to avail the incentives of the Policy, the company has to commit to the government by Dec’21 for upgradation and the management was positive that PRL will be in a position to commit within the given timeframe.

In this regard, the company is considering two options; i) acquire a pre-owned refinery or ii) setting up of new refinery. According to the company both the projects are possible, however acquiring a pre-owned refinery will be a cheaper option as it will cost 50% less than the cost of new refinery, the report cited.

If the company chooses to upgrade the current capacity of 50k bopd then the cost will be USD 0.8bn-USD 1.0bn. Meanwhile, if the company increases the capacity to 100k bopd then CAPEX will be USD 1.3bn-USD 1.4bn.

Developing a pre-owned refinery will take 3-4 years. Whereas setting up a new refinery or up-gradation can take 5 years, the management said.

Moreover, the management also disclosed that the upgradation will be a combination of equity (through the right issue of shares) and debt. The exact composition is yet to be decided.

With regards to furnace oil demand going forward, the management was of the view that it will remain a challenge for the industry as demand generally arises at the eleventh hour.

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