Pakistan Refinery: Corporate Briefing

To recall during FY22, sales of Pakistan refinery (PRL) grew to its highest ever level of PKR 191 billion. Gross profit increased to PKR20 billion due to high cracking margins globally. Despite a provision of PKR1.6 billion related to super tax, profit after tax and EPS increased to PKR 12.6 billion and PKR 19.96, respectively.

During 1QFY23, sales grew to PKR73 billion. Moreover, gross profit increased to PKR1.6 billion as cracking margins are on a decline globally. This led to an increase in net profit to PKR1.00 billion and EPS of PKR 1.63. 

PRL is a subsidiary of PSO with 63.6% holding. Plant’s annual capacity is 50,000bpd which is run on hydro skimming technology with Crude distillation, Hydrotreating, Platformer and Isomerisation units.

PRL product mix and margins: mainly comprises of HSD and MS, constitute 70% of the refined products and have higher margins than the rest. However, negative margins in FO has made it unviable for exports.

Wood plc was awarded to conduct a FEED study for the upgrade of the plant. Further, JS Global and UBL are hired as financial advisors for the arrangement of financing for the project. This deep conversion refinery upgrade project will allow the Company to produce Euro-V compliant fuel at the same time enhancing capacity to 100,000 bpd. 

The Company has altered its sources to lighter crudes which has resulted in higher profitability. It was mainly due to less reliance on ADNOC due to its lower grade and increasing the share of ARAMCO and KPC. In turn FO proportion in the production mix has declined to 22% which was more than 30% in FY19.

Higher of ACT (based in higher of accounting income and taxable income), normal corporate tax or the minimum turnover tax (0.5% on local and 1% on exports) is applicable on the Company.

During 1QFY23, taxation was provided on turnover tax which included PKR100 million deferred tax.

After the Sindh High Court decision on super tax, the Company is hopeful that its reversal would augment profitability going forward.

 Future outlook

Despite delays in the issuance of the new refinery policy, the Company remains committed to upgrade project as the country is reducing its reliance on FO for power generation and better margins are offered by HSD and MS.

The Company also changed its logo to reflect its contribution for the sustainable development of the country.

Key challenges include subdued refinery margin which is currently declining from its peak. Also, high interest rate and PKR depreciation will continue to dampen profitability. Lastly, low FO upliftment may hamper cash flows in the coming months.