Karachi, July 09, 2021 (PPI-OT): Pakistan Refinery Corporate Briefing Takeaways

Pakistan Refinery Limited (PRL) held its corporate briefing session to discuss 9MFY21 earnings and to discuss the future outlook of the company. To recall, PRL posted a profit of Rs621mn (EPS Rs1.03) during 9MFY21 as against a loss of Rs6.77bn (LPS Rs16.69) during the same period last year.

PRL tweaked its input mixture during 9MFY21 and by introducing a number of different crudes hailing from as far as Australia and Brunei which resulted in a significant change in the overall product mix in favor of high margin products and IMO compliant furnace oil. A broad breakdown of the change in the formula has been illustrated below. Through this new recipe PRL was even able to produce Euro-2 compliant HSD for a short period of time without undertaking any investments.

Moreover, the ability to produce 92, 95 and 97 RON MS has resulted in savings on the RON differential penalty.

The management said that the government’s policies have been relatively favourable for the mid-and-downstream oil sector. For instance exchange losses that had been a heavy burden for local players was made a pass through item by incorporating it into the Ex-Refinery price. Furthermore by moving from a monthly price revision to a fortnightly regime inventory losses have been significantly curtailed. On the monetary side, the impact of the sharp reduction in policy rate as a consequence of COVID-19 is reflected in the substantial decline in finance costs.

The Refinery Policy is yet to be approved by the cabinet and the management is hopeful that this will be done sometime next month.

To avail the incentives of the Policy, refineries will have to commit to the requisite up gradation by the December 31st 2021, and will be able to enjoy these incentives by January 1st, 2022. The management was positive that PRL will be in a position to commit within the given timeframe.

With regards to the up gradation, management is considering the possibilities of both, a pre-owned and a new refinery. While up gradation to a new refinery will take about five years, opting for a pre-owned refinery may be possible in about four years.

The up gradation will be a combination of equity (through 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.