KARACHI/ISLAMABAD: Saudi oil giant Aramco would not move forward on setting up a refinery in Pakistan without securing firm commitments and assurances from Pakistan government against its demands, including a 20-year tax holiday, The News learnt on Monday.
The $10.5 billion state-of-the-art deep conversion refinery would be built under 70:30 loan equity ratio and Saudi Aramco would share 30 percent equity with Pakistan State Oil (PSO) on a 50 percent basis.
However, Saudi Arabia clearly communicated to the Pakistani government when the officials from both sides held a virtual meeting a few days back that they required 7.5 percent deemed duty on gasoline and diesel for 25 years, along with 20 years tax holiday.
“The mega project of the refinery of 350,000-400,000 barrels per day capacity would be built on EPC (engineering procurement construction) mode. And 70 percent of the cost of the project is to be arranged through loans.
Saudi Aramco would provide $1.5 billion as equity and the same amount would be arranged by Pakistan State Oil,” a senior official privy to the ongoing bilateral talks between Pakistan and Saudi Arabia on ministers’ and experts’ level said. Both sides are still in talks.
“Saudi Aramco and PSO would finance $3 billion equity ($1.5 billion each) and the rest of the amount would be arranged through loans under EPC mode,” the official added. “Once Saudi Aramco becomes part of the project, then many international players would easily join the project and IFIs and banks of Saudi Arabia and China would be ready to provide loans.”
Saudi Arabia has also asked for the waiver of the customs duty already imposed at 5 percent on import of crude oil for the refinery. Earlier, Pakistan offered 10 percent deemed duty for the first 10 years of the operational project and 10 years tax holiday, but the Kingdom refused to budge from its conditions.
Both sides deliberated at length on the issues related to this refinery; however, consensus could not be reached, and the Pakistani side sought more time for an internal discussion to come up with its response to the Saudi demands.
PSO Managing Director Syed Muhammad Taha initiated the discussion on the policy incentives as proposed in an earlier meeting, which included 7.5 percent deemed duty on gasoline and diesel for 20 years with ten years tax holiday.
The Saudi side said that the market was now more challenging than before and they needed long-term commitments from Pakistan in order to take the project forward to the next stage.
The Pakistani side told the Saudis that the refinery’s commercial risk was negligible because the refinery’s production volumes of gasoline and diesel would be consumed to meet the local demand, and said that Aramco would remain the preferred crude supplier of the refinery.
Aramco officials asked the Pakistani side to clearly come up with its response against their demand and then have a face-to-face meeting to discuss the project further. The Pakistani side asked the Saudis to give them more time for further discussion to come up with the final response.
“It was clearly communicated by the Saudi side that Aramco can’t proceed further without Pakistan’s commitment and assurances on the demands of the company,” disclosed the official document.
Both countries have been negotiating on the refinery project for quite some time, and during the latest visit of Prime Minister Shehbaz Sharif, the project also came under discussion. However, various pacts, including the refinery project did move forward after Saudi Crown Prince Muhammad Bin Salman postponed his visit to Pakistan on November 21, 2022.
Official privy to the matters said that if the Saudi conditions were accommodated, then the country’s revenue on finished POL and crude oil would tumble from 10 percent to 2.50 percent. “And on this very issue, the authorities concerned are working out different scenarios. Once the scenarios are worked out, then the Pakistan side would be in a position to come up with a cogent offer for KSA.”
The official also said, “KSA also wants to make China a partner of the project and the Chinese company will construct the project. And on this particular issue, Pakistan has no objection at all.”
