- National Refinery (NRL) incurred PKR15.8bn losses, PRL posted PKR4.1bn profits and ATRL’s profit declined to PKR25.2bn, citing operational hurdles, declining GRMs and policy challenges
National Refinery (NRL) held its corporate briefing session to discuss FY24 financial results and provide insights on the future outlook. Key takeaway are as follows:
For FY24, NRL earned a revenue of PKR308.8 billion, a 3.4%YoY increase, but incurred a second consecutive loss of PKR15.8 billion (LPS: PKR197.5) as compared to a LAT of PKR4.5 billion (LPS: PKR55.8) for FY23.
Through revamp of fuel and lube-I refinery, the Company has boosted its crude oil processing capacity from 62,050 barrels/ per day to 70,000 barrels/ per day (23.1 million barrels/ per annum).
Company-wide GRMs were US$2.93 per barrel for FY24 as compared to US$10.17 for FY23, whereas for Lube segment GRMs fell to US$10.44 per barrel in FY24 as compared to US$20.55 a year ago.
Margins on HSD were down from 48% to 31% in FY24, whereas MS margins declined from 27% to 16% in FY24, as a % of Arab Light prices.
HSD’s proportion in the production grew from 32% to 39%, in FY24. Management plans to further raise HSD output due to healthier margins, while simultaneously reducing production of RFO and Bitumen.
L/C charges and Bank mark-up have started to decline as a consequence of falling interest rates.
Company initiated the exports of RFO during the outgoing year, by shipping 22,882 tons.
Volatility in fuel prices and margins alongside introductions of EVs into the domestic market are one of the several challenges the company faces.
Company plans to establish a CCR (Continuous Catalyst Reforming) unit alongside other associated units.
Authorities introduced the ‘Brownfield Refinery Policy’ during the outgoing year, however, several amendments introduced in the federal budget FY25 have adversely impacted IRR of the upgradation project.
Management remains optimistic with SIFC spearheading the resolution in this regard. Company would reassess the upgradation project once the hindrances are resolved.
The company profitability may improve due to focus on increasing production of high margin products while cutting down production of loss making ones. Moreover, removal of impediments in the Refinery Policy would allow it to follow through on its upgradation project allowing a further increase in production of the high margin products in its portfolio.
Pakistan Refinery (PRL) held its corporate briefing to discuss FY24 financial results and provide insights on the future outlook. Key takeaways from the meeting are as follows:
Company posted topline of PKR306 billion for FY24 as compared to PKR262 billion for FY23, up 17%YoY, led by volumetric growth. Earnings for the year were reported at PKR4.1 billion (EPS: PKR6.45) as compared to PKR1.8 billion (EPS: PKR2.90) for the same period last year.
Total HSD production for the year reached 660,180 tons, with the highest average daily production recorded at 2,013 tons. MS-92 also saw growth in output, with an annual production of 265,710 tons and a peak average daily production of 830 tons. Additionally, MS-95 production totaled 16,005 tons, of which 1,940 tons were EURO-V compliant.
Management stated, that crude intake is continuously adjusted to optimize yields and select crudes that better align with the refinery’s configuration. Throughout FY24, Aramco crude intake remained the highest.
Additionally, management has focused on reducing furnace oil output in the production mix, while increasing the share of High Speed Diesel and Motor Spirit, as margins for furnace oil are unfavorable.
Refinery Expansion and Upgradation Project (REUP) aims to achieve: 1) production of EURO V compliant HSD and MS/ Petrol, 2) installation of advanced deep conversion refinery technology to reduce the production of HSFO, and 3) expanding the refinery’s capacity from 50,000 bpd to 100,000 bpd.
Company has already spent US$50 million for feed study for the upgradation and expansion project.
FEED study completion is expected by 2QFY25, followed by submission of EPC-F bids in 3QFY24, selection of EPCC-f contractor in 4QFY25, and the award of the EPC contract and financial close by 2QFY26. Once financial closure is obtained, the construction and EPC phase, along with project commissioning, is expected to be completed by 4QFY28.
As regards the refining policy, PRL has already signed it, but the process may be delayed as other refineries are still in the process of signing.
PRL has already started receiving incentives under the Refinery Policy, which are being allocated to the Special Reserve head and will be accessible after achieving financial close.
The deadline set by SIFC for resolving issues related to the refinery upgradation policy has passed. However, management stated that SIFC remains fully involved in addressing the issue. The delays are due to the policy being announced in the budget, and removing it would require parliamentary action or a mini-budget. As a result, discussions are ongoing regarding alternative options to compensate or facilitate refineries.
Management stated that under the Refinery Policy 2023, their dividend-paying capacity is neither capped nor restricted.
The company’s production is immune to subdued demand amid adoption of solar powered tubewells and the increasing acceptance of EVs and hybrid cars in the country, due to heavy reliance of country on imports. Additionally, with the expansion, the company’s plan to phase out its furnace oil production aligns well with the country’s shift in its power mix. However, smuggling of diesel remains to be a key threat to the refining sector.
Attock Refinery (ATRL) held its analyst briefing to brief investors about FY24 financial results and shed light on the future outlook:
The company has posted profit after tax of PKR25.2 billion (EPS: PKR236.8) for FY24, down 14%YoY. The decline was driven by lower production alongside GRMs tapering off during the year, which averaged at US$14/bbl during FY24 as against US$18/bbl for the same period a year ago. Furthermore, GRMs during 1QFY25 were recorded at US$9.0/bbl.
Refinery’s throughput during the year was reported at 4,942 tons per day (down 2.8%YoY) representing a capacity utilization of 75% during the year, as against 78% a year ago.
Company underwent a turnaround of 30 days during February 2024 after five years for the purpose of essential maintenance activities.
Company exported 80,000 tons of LSFO during the year to address reduced throughput issues. Company receives a US$60-70/ton premium over the prevalent export price of RFO. Consequently, company plans to export a cargo of 30,000 tons each month moving forward.
Company has postponed signing the Refinery Expansion and Upgrade Project (RUEP) 2024 due to unresolved sales tax issues on imports. Management has expressed readiness to proceed with the policy, contingent upon the removal of hurdles such as smuggling and excess HSD imports by certain OMCs.
Post upgradation, addition of the Continuous Catalytic reforming (CCR) unit will enhance MS production by 25% while also meet EURO-V specifications for HSD. Company is targeting Debt to Equity of 70:30 for the upgradation project.
The management is fully focused on upgrading to RON-92 and Euro-5 specifications, where they are currently being penalized by the authorities for producing MS (Ron-91) and HSD with higher than allowed sulphur content. Furthermore, upgradation will enable conversion of the unwanted Naptha into more value added motor gasoline.
Management noted that if ATRL does not enter into the implementation agreement of RUEP 2024, the policy stipulates a reduction of the current 7.5% deemed duty on HSD to 5%.
The new RUEP 2024 effectively removing the cap on payouts that was previously imposed under the 1997 Refinery Policy.
Crude oil production in the northern regions have declined over the years, with current supply standing around 40,000 bpd. As a result, the company has been allocated 5,000 bpd of Badin crude from the southern region. Additionally, importing crude oil is currently unfeasible due to freight costs.
Company has acknowledged that recent oil discoveries made by E&P companies in the northern regions have increased output in that area.
Company currently uses light/ sweet crude, which usually yields high portions of MS and HSD and subsequently low RFO.
Management declined to comment on the rumors regarding potential M&A activities involving ATRL or any of its group companies.
SIFC deliberations
The Special Investment Facilitation Council (SIFC) was set to deliberate on the long-pending upgradation of brownfield refineries in its Executive Committee meeting.
According to the meeting agenda of the SIFC Executive Committee, the upgradation of refineries, delayed due to the sales tax exemption on petroleum products.
Under the Pakistan Refining Policy, refineries are required to sign upgradation agreements. However, the sales tax exemption on petroleum products has hindered these agreements. The Finance Act 2024 exempts sales tax on motor spirit (petrol), high-speed diesel, kerosene and light diesel oil, disallowing proportionate input tax claims and significantly raising operational costs.
With the government unable to impose sales tax on petroleum products due to fear of political backlash, refineries have hesitated to proceed with upgradation agreements. They argue that the exemption severely impacts the financial viability of upgrade projects, infrastructure development and routine operations.
“The continuation of this exemption will erode profitability and place severe financial strain on the industry, jeopardizing critical capital-intensive projects essential for ensuring an uninterrupted supply of petroleum products,” the refineries recently informed the government. They estimate operational costs for the oil industry to rise by approximately PKR25 billion in the current fiscal year due to the exemption.
Refinery officials expressed skepticism about resolving the issue in the upcoming meeting, noting that the Petroleum Division missed an earlier SIFC deadline of November 12, 2024. They added that abolishing the sales tax exemption would likely require a mini-budget, which seems unfeasible in the current political and economic climate.
“We proposed that the government adjust PKR1.5 through the IFEM pool, similar to mechanisms for oil marketing companies,” officials said. They lamented the government’s inaction, which has stalled up to US$5 billion in potential investments in the sector.
They also criticized the indecision of policymakers, which they believe is rendering the refinery policy ineffective. The meeting will also discuss Mubadala’s interest in the upgradation of Pak-Arab Refinery (PARCO). The UAE-based investor has been conducting a feasibility study to evaluate the project’s potential.