Karachi: The Pakistan Credit Rating Agency Limited (PACRA) has maintained the entity ratings of Pakistan Refinery Limited (PRL), citing its significant role in the country's petroleum supply and its association with the state-owned Pakistan State Oil (PSO). The announcement underscores PRL's strategic importance, despite facing financial and operational challenges.
PRL has embarked on an ambitious Refinery Expansion and Upgrade Project (REUP), which aims to double its crude processing capacity from 50,000 barrels per day to 100,000 barrels per day. The Front-End Engineering Design (FEED) for the project has been completed, and the company is actively engaging with EPC contractors to proceed with the project's financial closure.
During the first nine months of fiscal year 2025, PRL experienced a sharp decline in its gross refining margins, which dropped to negative $0.30 per barrel. This was attributed to global crude price volatility, weakening product premiums, and a challenging demand-supply environment. Compounding these issues were inventory losses, higher utility tariffs, and rising interest rates, leading to a reduced throughput level, a minimal gross profit of PKR 293 million, and a net loss of PKR 4.5 billion.
In response to these financial pressures, the PRL Board of Directors approved a loan facility of PKR 3.15 billion from PSO to finance the FEED study for the REUP, highlighting strong shareholder support. The company's reliance on short-term financing to manage its working capital was moderate, standing at approximately 64%, including FEED financing of PKR 12 billion.
Looking ahead, PRL's leveraging indicators are expected to rise due to the project-related loans necessary for the upgradation project. The company's cash flows remain under pressure, with interest coverage dropping to negative 1.5 times, reflecting increased financial and operational risks. However, management is focused on strategic measures to improve the company's financial position.
The ratings underscore PRL's resilient business profile, sustainable operational history, and strategic importance in the domestic market. The ratings are contingent on PRL's ability to shield its business from external vulnerabilities and improve its performance indicators and financial metrics. The refinery policy is expected to provide support to the REUP, contributing to the sustainability of PRL's operations.