Karachi, June 16, 2021 (PPI-OT): Pakistan Refinery: The much awaited policy finally arrives!

In the recently announced Budget FY22, government has included a number of incentives for refinery sector including a 10 year tax holiday on upgradation and establishment of new deep conversion refineries and increasing effective duty protection on MS to 7.5% from 0% while maintaining effective duty protection on HSD at 7.5%.

Increase in effective duty protection on MS is materially positive for local refiners in our opinion where assuming MS price of USD71.5/bbl and 70% utilization, annualized impact stands at PkR22.3/1.7/13.3/0.8/sh for ATRL/PRL/NRL/BYCO.

Though minimum capacity limit on upgradation projects is being taken up by local refiners with authorities, as things stand currently, BYCO turns out to the be the major beneficiary with company’s capacity exceeding 100k while the upgradation project is already underway.

We expect the refinery sector to remain in limelight on the back of incentives provided where increase in effective duty protection on MS makes ATRL stand out with company’s MS yield standing at 27% vs. 17/10/13% of BYCO/NRL/PRL while for the incentives regarding upgradation, BYCO turns out to be the major beneficiary.