PACRA maintains entity ratings of Pak Arab Refinery Limited

December 12, 2023 (MLN): Pakistan Credit Rating Agency Limited (PACRA) has maintained entity ratings of Pak Arab Refinery Limited (PARCO) at "AAA" for long term and "A1+" for short term with a stable outlook forecast, latest press release issued by PACRA showed.

The ratings incorporate PARCO's ownership structure representing the government of Pakistan (GoP) – (60%) and Abu Dhabi Petroleum Investment Company (ADPI) through Mubadala Investment Company, based in the Emirates of Abu Dhabi (40%).

The rating also incorporates PARCO’s strategic importance to the economy through operations providing efficient, low-cost, and environment-friendly energy solutions through the transportation of petroleum products via integrated Pipelines.

Pakistan's consumption of petroleum products experienced a downtrend by a sharp 26.1% YoY in FY23.

This decline is attributed to sluggish industrial activity, reduced local transport fuel consumption, weak auto sales and high product prices.

In FY23 consumption of HSD & MS stood at 6.4 million MT and 7.5mln MT of which 44.4% (for both products) met through the local production.

PARCO, being the market leader retains the market share of 46% in FY23 of the total domestic supply of Petroleum products.

In continuation, PARCO witnessed revenue growth of 21% during FY23, while a significant increase was observed in 1QFY24 where the sales increased by 32.8%.

The company has low leveraged structure and operations are generally funded by its own resources.

Further, the revenue streams also include return on investments in subsidiaries and associates.

PARCO is also contributing substantially towards socioeconomic benefits and Foreign Exchange savings for the country.

The recently approved “Refining Policy for Upgrade of Existing /Brownfield Refineries 2023 and New /Greenfield Refineries”, provides fiscal incentives in form of tariff protection to refineries considering upgradations.

Certain modalities of the Policy are currently under discussion with the Ministry of Energy, Petroleum Division, and Government of Pakistan.

PARCO has completed a feasibility study for the upgrade project and working on underlying agreements (as per the policy) to be signed with OGRA to proceed further.

In line with its strategic vision, PARCO has also initiated an integrated refinery-petrochemical complex of 250-350kbpd project namely the PARCO Coastal Refinery Project.

The feasibility study of the Petrochemical complex has been completed.

Effective management of upcoming projects, consistency in government policies, and technological improvisation will remain critical for the ratings. Meanwhile, sustained competitive positioning is also imperative.

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