Parco to Invest $1.3 Billion in Hydrocracker Unit for Sustainable Fuel Supply


ISLAMABAD: Pak Arab Refinery Limited (Parco), a leading oil refiner, has announced a long-term investment of up to $1.3 billion to establish a hydrocracker unit aimed at converting furnace oil into petrol and diesel. This project is designed to ensure a sustainable oil supply and enhance energy security in Pakistan.

The investment follows the government’s approval of new refinery policy incentives, encouraging upgrades to produce environmentally friendly Euro-5 fuels. Parco initially requires $500 million for plant upgrades, but its shareholders prefer a comprehensive long-term investment strategy.

The shift to liquefied natural gas (LNG) by the power sector has reduced furnace oil demand, leading Parco to export excess stocks. The new hydrocracker unit will address this by converting furnace oil into valuable byproducts, reducing petrol and diesel imports, and saving significant foreign exchange.

The hydrocracker unit’s estimated cost is $1.75 billion, with clean fuel production around $500 million. Parco is evaluating an investment of $1 billion to $1.3 billion and anticipates $1.5 billion in export proceeds over the next six years. The company has requested the State Bank of Pakistan (SBP) to allow the use of these proceeds for the project’s foreign currency requirements.

With $400 million available for equity investment, Parco stands to benefit most from the brownfield refinery policy’s incentives, estimated at around $300 million. The Special Investment Facilitation Council (SIFC) has also reviewed the matter, with the Petroleum Division seeking an extension for implementing the new policy beyond the original April 22, 2024 deadline.

The new refinery policy aims to upgrade oil processing plants for Euro-5 fuel production and reduce furnace oil output. Incentives include a 2.5% incremental duty on high-speed diesel and a 10% duty on motor spirit, along with the current 7.5% deemed duty on diesel for seven years. Collections will be managed in an escrow account by the Oil and Gas Regulatory Authority (Ogra), covering up to 27.5% of upgrade costs.

To access these incentives, refineries must sign upgrade agreements, open an escrow account, and provide a Rs1 billion bank guarantee to Ogra. While Attock Refinery Limited (ARL), National Refinery Limited (NRL), and Pakistan Refinery Limited (PRL) are ready to sign deals, Parco and Cnergyico PK require more time.

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