Refineries reject shutdown proposal as anti economy

KARACHI: Pakistan’s oil sector is currently seized with an intense debate as to whether oil refineries operating in the country should be closed down after allegedly becoming obsolete and having high carbon emissions.

Recently, Farooq Rahmatullah, a member of Energy Expert Group of Economic Advisory Council (EAC) proposed to the government to shut down three refineries i.e., Pakistan Refinery Limited (PRL), National Refinery Limited (NRL) and Byco Petroleum Pakistan Limited, arguing they have become obsolete and contribute heavily to air pollution because of high carbon emission.

Rahmatullah’s proposal triggered a strong response from the top management of the three aforementioned refineries. They approached the government by writing separate letters to the Petroleum Division in quick succession and accused Rahmatullah of acting at the behest of oil importing lobby. The management of these three refineries also accused this lobby of jeopardising the reforms through “refining policy”, which is coming after two decades.

“The mere suggestion to close down existing refineries clearly shows his lack of understanding of local refiners' strategic importance, both from country's defence perspectives as well as their key role in the oil supply chain. Refineries create value-addition, saving billions of dollars, reduce pressure on the port infrastructure and provide direct and indirect employment to thousands of people,” the refinery officials argued in one of the letters.

The letters of three refineries, obtained by The News International and the information gathered from people associated with the oil sector of the country clearly suggest a tug-of-war is going on between oil importing and refining sectors of the country.

“We should see the things in long-term perspective in the interest of the country,” Rahmatullah told The News International and contended that simple refineries were closing down throughout the world.

“I have proposed that these refineries should be replaced with deep-conversion refinery having minimum carbon emission and latest refining structure,” Rahmatullah’s said.

Zahid Mir, Managing Director (MD) & Chief Executive Officer (CEO) of PRL, strongly refuted Rahmatullah’s contention that PRL, NRL, or BYCO were obsolete and as such should be shutdown.

“None of the refineries in Pakistan are outdated as they have been continuously upgrading by making substantial investment to comply with changes in product specification from time to time,” Mir, who is also Chairman Oil Companies Advisory Committee (OCAC), told The News.

“It seems very strange that Mr Rahmatullah, who was director of PRL from 1999 to 2018, including as chairman of PRL board of directors from 2005 to 2017, is now categorising PRL as an outdated refinery thus raising the question why during his tenure he did not upgrade or advocate closing down the refinery,” Mir asserted.

According to Mir, a deep-conversion refinery is unworkable in the present conditions.

“Any green-field deep conversion refinery will take minimum of seven to eight years to come into commercial production and to match the name-plate capacity outage of 275,000 barrels due to closure of three refineries, the new refinery should have minimum 275,000 barrels per day capacity,

which entails an investment of at least $8 billion, without considering certain infrastructure costs like pipeline connectivity, port/jetty cost or cost of Single Point Mooring (SPM) etc., which if included, could easily take the price tag to $10 billion,” Mir stated.

Apparently generating such a huge investment, considering country’s geopolitical situation, is an extremely uphill task as compared to a lower amount required to upgrade all the existing refineries, which will require an investment of around $4-5 billion.

Regarding carbon emission level, all three refineries in their letters to Petroleum Division asserted they were complying with the national environmental quality standards. NRL is the only refinery in Pakistan producing Euro-V standard diesel.

“Shell has closed down 35-40 refineries in various parts of the country,” Rahmatullah said responding to the allegation he was acting on behalf of import lobby and why he didn’t do this when he was Chairman PRL.

“Yes, I couldn’t succeed because Shell had 35 percent holding at that time and I couldn’t do it,” Farooq stated.

On the other hand, Mir feared adverse pressure on country’s oil supply chain if three southern refineries were closed.

“It will not only create insurmountable problems for the citizens … but also logistical issues in product distribution across the country,” he said and added thousands of jobs associated directly or indirectly with these refineries would be lost.

Mir also expressed surprise at the timing of the proposal to shut down the refineries.

“The proposal comes at a time when Ministry of Energy, after detailed deliberations spanning over almost two years, has drafted the Refining Policy, which is founded on the basic premise of refineries’ undertaking to upgrade and produce environment friendly products within stipulated timeframe,” said Mir

“The letter by Mr Rahmatullah is hugely biased, based on falsehoods, and misconceptions, which do not serve our national interests and it is an effort to mislead the government in policymaking, and therefore, does not deserve the government’s consideration,” he said.

He said that closure of these three refineries would only encourage the imports/trading of petroleum products, resulting in benefits to a “selected group” as against job creation opportunities provided yearly by these three refineries.

Tariq Kirmani, Chairman PRL, also stressed that the proposed refining policy was intended to not only modernise the refineries, but also usher in new job opportunities for the talented youth of Pakistan, besides helping the government's efforts, to improve its balance of payment through import substitution by reducing import bill of refined petroleum products

Jamil Ahmed Khan, CEO NRL in a letter to Petroleum Division argued that developing countries took decades to plan and install a crude oil refinery.

Referring to the proposal, Jamil pointed out “pitching such ideas not only pollutes investors’ minds but also affects the interest of shareholders, who have invested heavily in this sector”.

Byco in its letter to Petroleum Division emphasised “it has been going through continuous process of upgrading by making substantial investment to ensure superior quaity and environmentally-friendly production”.