Khalifa Coastal Oil Refinery (KCR) project a mega oil refinery planned in Pakistan and almost one of the largest investments in the country which can help meet local demand and export the rest of refined petroleum products facing difficulty in completion and in danger of suspension but hopefully the eager negotiations keeping the project to be continued. The KCR project is important for the least developed province, Balochistan, as it will bring huge investment, other socio-economic benefits and create job opportunities for the local people. According to an estimate, the project will provide direct employment to 1,500 professionals and indirect employment to 3,000 semi-skilled and manual laborers. It has been estimated that around 10,000 people will be employed directly or indirectly during construction phase.
The KCR project a joint venture between Pak Arab Refinery Limited (PARCO) and International Petroleum Investment Company (IPIC) of United Arab Emirates (UAE) scheduled to be completed by end of 2012 has been in doldrums since 2009. The project costing is US$6 billion and will be the largest oil refinery of the country with 250,000 barrels per day oil refining capacity. The refinery would be the sixth in the country after National Refinery Limited, Pakistan Refinery Limited, Attock Refinery Limited, Pak-Arab Refinery Limited and Indus Refinery Limited. Pakistan has an installed refining capacity of 12.82 million tons a year from its five refineries. Before 2009, work on KCR project slowed down due to circular debt. In January 2009, the Abu Dhabi government had put work on the refinery project on hold due to global recession but now circular debt had become major reason for another delay.
In 2009, the UAE government argued that because of the global economic meltdown that adversely affected the UAE economy it was unable to immediately start work on the refinery with huge investment. Keeping in view the expected delay in initiating the project, Pakistan had asked PARCO to start working by enhancing its capacity to refine another 100,000 barrels of oil per day to cater to the country’s future needs.
In 2007, UAE had signed an implementation agreement with Pakistan for establishing a $6 billion refinery at Khalifa Point in the Hub district of Balochistan. Under the deal, Abu Dhabi’s IPIC will set up refinery with a target capacity of refining 200,000 to 300,000 barrels per day (bpd) while IPIC holds a 74 percent stake, the stake of Pakistan-Arab Refinery Company (PARCO) is 36 percent in the project. KCR project was originally planned for Gwadar, but it was later moved to Hub.
PARCO is a joint venture between Government of Pakistan (60%) and Abu Dhabi Petroleum Investment (40%). It was incorporated in Pakistan in May 1974, as a public limited Company. Today, PARCO is considered the fulcrum in Pakistan’s strategic oil supply and logistics. It has emerged as the strategic fuel supplier to the country. It is actively involved in various facets of oil storage, transportation, refining and marketing of energy products.
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Last year, the PARCO made up its mind to establish a state-of-the-art deep conversion coastal refinery with capacity to refine crude oil up to 300,000 barrels per day at the Khalifa Point near Hub in Balochistan. For this purpose, the board of directors of the company already approved initiation of a feasibility study. Upon completion of the study, PARCO will take a final decision to go for a mega refinery or not.
The proposed Khalifa refinery would be connected with existing POL distribution network and its petroleum products would be based on ‘Euro IV’ specifications for improving environmental standards besides, ensuring the products to be easily traded on the international market. It will have operation and maintenance service business for Pakistani companies besides, developing other ancillary and support industry around the refinery complex.
Khalifa Coastal Refinery would double Pakistan’s refining capacity. Crude oil tankage for the refinery is estimated in the range of 500,000 and 600,000 tons. It would have single-point mooring (SPM) with sub-sea pipeline for crude unloading and product loading operations. The capacity of SPM is expected to handle about 1.5 million tons per month. Under the tax holiday regime, the refinery will get concession of repatriation of all income and capital gains outside Pakistan without any tax liability. It will remain exempted from workers participation fund (WPF) and workers welfare fund (WWF). The development charge of 0.5 percent has also been exempted for 20 years.
Pakistan is largely dependent on oil imports. The energy statistics of the country shows that around 50 percent of the need is met by the indigenous gas production and 29 percent by domestic and imported oil and 11 percent by hydro-electricity. Bulk of the PARCO’s revenues is generated from its refinery operations. PARCO markets its products through off-take agreements with Oil Marketing Companies and also through its own brand, PEARL. It also has a 40% stake in TOTAL-PARCO, a joint venture with Total Fina Elf – a French conglomerate, to market upto 25% of the MCR’s production through a rapidly expanding network of TOTAL-PARCO outlets. UAE has 40 percent equity in PARCO located in Mehmood Kot area of Multan. The $886 million country’s largest refinery, capable of purifying 100,000 barrels of oil a day, was commissioned in September 2000. The White Oil Pipeline transports imported oil from Port Qasim to the Pak-Arab Refinery.
The revival and development of KCR refinery project in coastal Balochistan has its own strategic importance. It is significantly linked to the China Pakistan Economic Corridor (CPEC) worth $62 billion. Gwadar Port is expected to serve as secure outlet for the Middle East and Central Asia oil and gas supplies through a well defined corridor passing through Pakistan. Deep-sea port at Gwadar, and future plans for important cross-national oil pipelines traversing the state would further enhance the region’s strategic value. By virtue of its geo-strategic location, Gwadar is likely to emerge as a free oil port in the south Asian region. It can serve as the future petroleum and petro-chemical hub of Pakistan meeting the oil transshipment requirements of different countries. That is why, Pakistan needs to enhance its refining capacity and it needs more mega oil refinery projects in its strategically located province.