Pakistan and Saudi Arabia sign MoU to build $10 billion oil refinery in Gwadar Port

Islamabad: Pakistan and Saudi Arabia have sealed a Memorandum of Understanding (MoU) to construct Pakistan's largest oil refinery at the strategic Gwadar Port. The project, with a staggering investment of USD 10 billion, is set to be a joint venture between four Pakistani state-owned petroleum companies and the Saudi Arabian energy giant, Aramco.

According to a report in the Dawn newspaper, the MoU was inked on Thursday in the presence of high-level officials from the Oil and Gas Development Company Ltd (OGDCL), Pakistan State Oil (PSO), Pakistan Petroleum Ltd (PPL), and Government Holdings Private Ltd (GHPL).

The move is intended to provide assurance to Aramco, enabling the Saudi firm to make a substantial investment in Pakistan's energy sector.

The proposed refinery is expected to have a remarkable production capacity of 300,000 barrels per day, positioning it as a major player in the region's refining industry.

The Pakistani government, led by Prime Minister Shehbaz Sharif, is actively engaged in advanced negotiations with Aramco to expedite the greenfield refinery project at Gwadar Port. With the current government's tenure coming to an end in two weeks, there is a strong push to finalize the initial paperwork for the project.

To facilitate the Saudi investment in the ambitious refining endeavour, the Pakistani government has recently introduced a new policy. Under this policy, a new deep conversion oil refinery with a minimum daily production capacity of 300,000 bpd can avail of a customs duty rate of 7.5 per cent for 25 years on petrol and diesel of all grades produced. This incentive is applicable from the date of commissioning of the refinery and aims to attract further foreign investment in the energy sector.

The integrated complex shall comprise various components such as marine infrastructure, petrochemical complex, storage for crude oil and refines utilities, pipeline connectivity etc.

According to the Petroleum Division, despite being integral to the growth of the economy, no new refinery project has materialised in Pakistan for more than a decade and only two refineries have been added in the last 40 years.

Compared to the 20 million tonnes of refining capacity, the actual capacity utilisation is at around 11 million tonnes.

This is mainly due to the decreasing furnace oil demand in the country as a result of a change in the energy mix in the power sector and the fixed production slate of refineries that cannot produce just petrol and high-speed diesel and all products are produced simultaneously.

Thus, as furnace oil demand declines, refineries have to lower their overall production and struggle to maintain their throughput at optimal levels.

This is despite the fact that independent consultants forecast Pakistan’s demand for petrol and diesel to grow beyond 33 million tonnes per annum by 2023.

The said refinery shall also enjoy a 20-year tax holiday and would also be entitled to exemption from levy of customs duties, surcharges, withholding tax, general sales tax, any other ad valorem tax or any other levies and duties on import of any equipment to be installed, or material to be used in the refinery projects without any precondition for obtaining certification by the Engineering Development Board.

These fiscal incentives and other facilitation would be recorded and protected under the project agreements between the project company, the key sponsors, investors and the concerned government and would be protected through a grant to Special Economic Zones Act.

Minister for State Musadiq Malik, who witnessed the MOU signing ceremony, said the Saudi oil firm showed a willingness to inject the entire equity into the multibillion-dollar refinery project, leading the Pakistani government to decide on a joint venture with key SOEs, the report added.

With inputs from PTI