Refineries plan to import 3.6m tonnes of Russian oil annually

ISLAMABAD: Pakistan is set to increase its imports of Russian crude oil by up to 3.6 million tonnes per year from January 2024, as two refineries find it cheaper and more profitable to refine the URAL grade and pay in yuan instead of US dollars, top officials of the Energy Ministry told The News on Monday.

Private sector refinery Cnergyico PK Limited has planned to import two cargos of 100,000 tonnes each every month under a long-term agreement with a Russian company, while Pakistan Refinery Limited (PRL), which is 64 percent owned by state-owned Pakistan State Oil (PSO), will import up to 1.2 million tonnes of URAL per year under a flexible business-to-business model depending on the price and volume.

"This is how cheaper Russian crude imports in Pakistan per year will go up to 3.6 million tonnes," a top official of the Energy Ministry said.

"The transactions would be carried out in yuan, not in US dollars. The said refineries will save the amount they paid in the form of premiums and will also save sizable foreign exchange reserves through payment in yuan. More importantly, they will also pay the government 46 percent tax on their profits." Officials said that right now, both refineries produce 58-60 percent furnace oil from the URAL they have booked earlier. However, after the completion of the upgradation of refineries in six years' time under the brownfield policy, the said refineries will be able to plummet the production of furnace oil from URAL to just 7-8 percent, and the rest of URAL will be converted into finished products.

Pakistan Energy Minister Muhammad Ali said at the recently concluded Russian Energy Week held in Moscow that Pakistan will import 30 percent of its crude oil from Russia through private and public sector refineries.

Cnergyico found the refining of 100,000 tonnes of URAL economically viable, and it has produced 58-60 percent furnace oil, which will be exported by the private refinery. However, it also produced 12-13 percent of naphtha (converted into Motor Gasoline) and 20-22 percent diesel. Keeping in view the encouraging yields from URAL and post successful Ministerial visit to Moscow it is expected that from December onwards two cargos of URAL will be processed by private refinery, each having 100,000 tonnes of crude. CPL has a large capacity to refine 156,000 barrels per day and can easily refine 200,000 tons of URALs in a month on top of their existing crude supply arrangements.

Cnergyico Limited also confirms that it is in talks with a Russian company for a long-term agreement, and it is likely to start importing two cargos of URAL every month from January 2024.

PRL will also continue to import Russian crude—URAL—under business-to-business arrangements, and the profit it earns will be utilized in its upgradation besides the incentives from the government under the brownfield policy. The sources said that PRL will import up to 1.2 million tonnes of URAL in a year if the price of URAL stays at or below $60 per barrel, the price cap imposed by G7 countries.

"Every month, PRL will examine the URAL price, volume, and freight price and then will decide to import Russian crude and make assurance that it would not violate the G7 regulations to keep itself from the sanctions."

To a question, the official said that PRL can import independently on the business-to-business model and it does not fall under the jurisdiction of PPRA rules. SOE rules also do not apply to PRL. PSO owns 64 percent of shares in PRL, and the remaining shares are held by the public, some banks, and investment houses. Out of PSO's shareholding, the government has just 32 percent shares in PRL.

"We have decided not to import Russian crude under the government-to-government arrangement, which is why PRL will also import the Russian oil under a commercial contract under the business-to-business deal. PRL will not pass the profit on to consumers in the shape of any relief, rather the profit it will mop up is to be utilized for the upgradation of the refinery," the official added.

They also disclosed that a Chinese company, United Energy Group (UEG), is also going to procure a 30 percent stake in PRL, and due diligence is underway to this effect. The Chinese company will also provide funding of $1 billion and enter into an engineering, procurement, and construction (EPC) contract with PRL. The Chinese company will help increase PRL's capacity to refine crude up to 100,000 tonnes a day from 50,000 tonnes, apart from its upgradation.