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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Sticky post on: January 05, 2016, 04:06:16 PM »

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #-1 on: January 05, 2016, 04:06:16 PM »

Toshi

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E&P, OMC, Refinery & Chemical Sector
« on: November 26, 2009, 11:34:01 AM »
All About E&P,OMC and Refinery Sector
« Last Edit: October 26, 2012, 01:20:56 PM by M&M »

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #1 on: November 26, 2009, 11:38:02 AM »
E&Ps: Baluchistan Package finally unveiled

A) We believe the measures/steps announced under the Baluchistan package may set
the stage for a medium term improved law & order situation and result in a
conducive exploration drilling environment for the E&Ps.
B) While the announced measures are comprehensive and importantly set out a clear
direction for implementation of the same, reaction of political parties is mixed at
best so far.
C) Unlike previous attempts, the current efforts deviate on two counts
 (1) the govt. has taken all parties on board and hence the measures have broad-based acceptance and
 (2) clear implementation guideline.

D) The government targets to formalize Baluchistan’s representation on BoD of PPL,
OGDC and Sui South Gas Co. Similarly, via future rights issue, the province can
own up to 20% stake in these companies.

E&P may emerge as key beneficiary

We believe the measures/steps announced under the Baluchistan package may set the stage for a
medium term improved law & order situation and result in a conducive exploration drilling
environment for the E&Ps. Baluchistan is one of the most hydrocarbon/mineral rich regions, home
to Pakistan’s largest gas find to date. Furthermore, we do not any see direct/indirect earnings
impact on listed E&Ps as most of the measures/steps require the federal government to share
more resources with the Baluchistan province. Improved environment should draw interest from
foreign E&P companies. Pakistan Petroleum Ltd, our to pick in E&P space, and Oil & Gas Dev. Co.
are most geared to reserve potential in the province and should benefit the most from future
exploration.

Measures target empowerment and ownership
The Govt. has unveiled a conciliatory package named Aghaz-i-Haqooq-e Baluchistan (Beginning of
rights of Baluchistan) proposing wide ranging measures/incentives covering constitutional,
administrative, political and economic aspects. The core objectives of the package are to
(1) enhance provincial autonomy, increase ownership by taking steps to eliminate the sense of
political, economic and social injustice,
(2) stamp out the feeling of exploitation of natural resources and
(3) woo political forces and dissidents into mainstream politics.

Mixed reaction to package, implementation is the key

While the announced measures are comprehensive and importantly set out a clear direction for
implementation of the same, reaction of political parties is mixed at best so far. All mainstream
opposition parties were taken on board before the announcement of measures and have given
approving statement. Regional opposition parties though, have termed the measure as insufficient
however at the same time have pinned hopes on implementation of announced measures. Unlike
previous attempts, the current efforts deviate on two counts
(1) the govt. has taken all parties on board and hence the measures have broad-based acceptance among mainstream political parties and
(2) clear implementation guideline.

Hydrocarbon industry finds major focus

Given importance of hydrocarbons for the province, the major focus of economic measures is on
the Oil & Gas industry. In fact, out of total 14 economic measures, five pertain to Oil & Gas
industry. The government targets to formalize Baluchistan’s representation on BoD of PPL, OGDC
and Sui South Gas Co. Similarly, via future rights issue, the province can own up to 20% stake in
these companies. However, for now we do not see any future rights issue from PPL and OGDC.
Beefing of security in Kohlu area would be a key positive for increasing exploration in the area.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #2 on: November 27, 2009, 05:45:05 PM »
LPG price raised by Rs 4 per kg

KARACHI (November 27 2009): Following the decline in the production of Liquefied Petroleum Gas (LPG) during winter, the price of locally produced LPG has gone up by Rs4 per kg, traders said. In a statement issued on Thursday, Abdul Hadi Khan, Chairman, All Pakistan LPG Distributors Association said the local producers have increased the price of LPG by Rs4 per kg, Rs40 per 11.8kg and Rs160 per 45.4kg cylinder.

He said the production of LPG has declined to 1450 tons per day in winter, however, the demand has risen to 2100 tons. Hadi said around 4200 tons LPG has been imported from UAE to meet the demand and added that the local producers are trying to damage the concept of providing cheapest fuel to masses. He stressed the need for evolving a policy to fix LPG per ton rate, saying: "if the government takes positive measure in this regard, the consumers would surely get LPG at nominal rates."

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #3 on: December 04, 2009, 09:45:03 PM »
Refineries' pricing formula review
The first meeting of Oil Pricing Formula Review
Committee scheduled was held on Thursday to
review the existing oil pricing formula. The oil
pricing committee formed by Supreme Court has
asked the refineries to present 5 years financial
results and plea their case before any revision in
the pricing formula. The committee aims to
finalize the revised formula by 24th December.
The next meeting is scheduled on 11th
December. Local refineries have been seeking
relaxation as they have started making losses
after the oil pricing formula was revised in which
the deemed duty benefit on diesel was reduced
to 7.5% from 10% and pricing of petrol was
linked to international Naphtha prices instead of
Gasoline following the crude price hike last year,
thereby reducing the margins significantly.
Because of unfavorable pricing margins refineries
have lately been operating at an average of 78%
as compared to the historical average of over
90%, coupled with high exchange losses and
serious liquidity crunch arising due to circular
debt. Refineries are preferring reversion on old
formula with a minimum profit of 10% and
maximum of 40%.
Whatever the outcome is, we recommend that
this issue is settled sooner than later for having a
clear and transparent pricing formula that
encourages new investment in this sector. We
will update our recommendations on the
companies under our coverage in refinery sector
after settlement of the pricing mechanism.

Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #4 on: December 05, 2009, 09:47:16 AM »
Refineries' output declines by eight percent in July-November period
RECORDER REPORT
KARACHI (December 05 2009): The total of refineries production declined by 8 percent in the first five months (July-November 2009) of FY10. On month-on-month basis, the refineries' production reduced by 6 percent in November 2009 to 6,50,000 tons. According to provisional figures, during July-November 2009 period, total of refined oil production stood at 3.5 million tons, compared to 3.8 million tons in the corresponding period of last year, depicting a fall of 8 percent.

A massive decline, of 16 percent, was seen in furnace oil production during this period. The only product registering an increase in production was mogas, showing a growth of 3 percent. "The overall dip in production can be attributed to the persisting circular debt situation", an analyst said. A scheduled maintenance shutdown at NRL in July 2009 was another causal factor behind the slump, they added. Reviewing refineries individually, Parco maintained its leader position.

In fact, it enhanced its market share to 42 percent from 40 percent earlier. This gain was primarily a consequence of a relatively better performance in FO, HSD and jet fuel segments, where the company was able to improve its market share by 4 percent, one percent, and 4 percent, respectively, Umer Ayaz, an analyst at JS Global Capital said.

Attock Refinery (ATRL) also saw improvement in its market share, by 2 percent. This was mainly led by a comparatively better performance in its FO production, where it witnessed a yearly decline of two percent versus a 16 percent fall experienced by the industry. A flat HSD production level in this period also helped ATRL in improving its overall market share, he added.

NRL and Bosicor, on the other hand, lost ground by 3 percent and one percent respectively. PRL's share remained unchanged at around 18 percent. Refinery production in November 2009 stood at 649,000 tons, witnessing a decline of 6 percent as compared to October. This was mostly because of FO production being 15 percent lower, arriving at 188000 tons. HSD production also fell by 6 percent at 247000 tons. However, a 20 percent recovery in jet fuels mitigated the impact of low HSD and FO production to some extent, in volumetric terms.
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Offline Farzooq

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #5 on: December 05, 2009, 09:56:31 AM »
Refineries seeking better regulatory environment:

Following drastic reduction in
Global Refining Margins (GRMs), the refinery sector posted significant losses during
1QFY10 while 2QFY10 reflects no respite for the sector. Given this challenging
environment, local refineries reinforced their efforts to demand regulatory relaxations
including 1) resolution of circular debt issue, 2) ease in interest rates, 3)
revision/alteration in price calculation methodology to reduce impact of exchange rate
fluctuations for the sector and 4) reversion to fortnight revision of oil price calculation. In
response to these demands, the Petroleum Ministry has asked the refineries to present
their 5 year financial statements which hints towards further delays before any
relaxations are provided to the sector.
We maintain an UNDERWEIGHT stance on the sector on the back of low GRMs,
regulatory risks, uncertain outlook and cash-flow problems.
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Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #6 on: December 05, 2009, 10:00:42 AM »
Businessmen seek reduction in POL prices

ISLAMABAD: The business community on Friday demanded of the government and oil refineries to provide relief to the people by reducing prices of POL products as people were almost buried under the skyrocketing prices of utilities, POL prices and food items.

They said the government had already allowed 18 percent increase in gas and 12 percent rise in power tariffs from January 1, 2010 and feared these increases would have a negative impact on law and order situation in the country.

Islamabad Chamber of Commerce and Industry President Zahid Maqbool presiding over a meeting in the chamber said that the government was earning huge revenue from the people in the form of taxes on the prices of POL products, which was a great injustice to inflation-stricken people. The government should reduce prices of petroleum products to provide a sigh of relief to the general public, he added.

He said the recent increase in the prices of utilities and POL products would immensely hit the industrial and agricultural productivity putting a negative impact on the overall economy. He lamented that the government has continuously been increasing the prices of POL products in complete disregard of the hardship and problems being faced by the common man as well as by the different sectors of the economy, especially industry and agriculture.

He said whenever the POL prices were reduced in the international market, the same were kept high in Pakistan and whenever the prices go up in the international market, the government immediately shifts the whole burden on to the people, which was highly discriminatory. ICCI chief feared that prices of all the goods produced locally would go up sharply in the near future further squeezing the purchasing power of the general public. He said a large number of small and medium sized business units were closed in the last six months owing to the surging cost of production while this increase would ultimately cause closure of more industrial units unleashing a new wave of massive unemployment.

He said frequent increase in gas, power tariffs, transport fares and oil prices would accelerate the capital flight and would discourage local and foreign direct investment. He said other countries in the region, including India were providing relief to their consumers by reducing POL prices and questioned the logic of the government of Pakistan for making the lives of people more miserable by increasing prices of these products.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #7 on: December 05, 2009, 02:04:17 PM »
Pakistanis forced to buy expensive LPG
 
Pakistanis forced to buy expensive LPG KARACHI: The LPG price in the country is Rs10 to 34 ahead of the gas price in the international market.

According to the industry sources, the price of the imported LPG is Rs76/kg at Karachi Port.

The sources said the gas is being sold at Rs90/kg in Lahore, Rs100 in Peshawar, Rs105 in Murree and the Gilgit people are buying the gas at Rs110/kg.

The sources said the local production price of gas rocketed from Rs17 to 75 per tonne during the last four years in the country and a case in this connection is being heard in the Supreme Court (SC).

He also informed that 95 percent LPG is indigenously prepared; but, its sale on the international prices is injustice to the people.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #8 on: December 10, 2009, 09:20:29 AM »
Refineries urge government to revive guaranteed return formula

ISLAMABAD (December 10 2009): Oil refineries have requested the government to replace the current ex-refinery formula based on deemed duty with guaranteed return formula to provide "safety net" to the industry, Business Recorder reliably learnt here on Wednesday. The proposal has been submitted to a high level committee that would present its report to the Supreme Court on December 24.

Prior to 2002, all the refineries were guaranteed a minimum of 10 percent and maximum of 40 percent return on their paid-up capital. This guaranteed return formula was abolished in 2002 under the deregulation policy. The new formula allowed the refineries 10 percent deemed duty on HSD, which was reduced to 7.5 percent on July 31, 2008 when oil prices shot up to 147 dollars per barrel.

"Oil refineries have also submitted two other proposals that include processing fee and enhancement in deemed duty on HSD from existing 7.5 to 10 percent," sources said, adding that processing fee may range from 2-5 dollars per barrel in Pakistan. They argued that oil refineries were in favour of abolishing deemed duty if the government restored the guaranteed return formula.

Under this formula, the government will compensate oil refineries if their profit remained below 40 percent. "The high level committee held its first meeting during the last month and now it was expected to meet on December 17, to finalise the proposals for new ex-refinery formula for oil industry that would be submitted before the Supreme Court," said the sources.

The refining industry has also placed a request before the committee to review the oil prices on a fortnightly basis instead of monthly basis to secure them from margin losses due to fluctuation in global oil prices. The average price of the past month is taken to calculate the oil price in the country and oil refineries argue that fluctuation in price of crude oil in the international market has put oil refineries in negative gross refinery margin (GRM).

The fortnightly price fixation system was changed to monthly basis effective from February 1, 2009. Market sources said that refineries had suffered huge losses during the 2008-09 financial year due to sharp decline in global oil prices and almost negligible guaranteed return (GR) for the refineries under the existing scenario. They pointed out that the rupee dollar parity loss, reduction in global oil prices and circular debt had had a major impact on the profitability.

The total liabilities of Pakistan State Oil (PSO) on all accounts stood at Rs 83.406 billion on Wednesday and out of it, the PSO was to pay Rs 55.429 billion to the oil refineries. The PSO payable to local refineries is as follows: Parco: Rs 22.654 billion; PRL: Rs 9.46 billion; NRL: Rs 8.521 billion; ARL: Rs 10.643 billion; and Bosicor: Rs 3.827 billion.

PRL General Manager, Supply and Planning, Aftab Hussain told Business Recorder that due to circular debt, oil refineries were facing problems associated with continuing operations. He noted that refineries were the strategic assets of the country and the whole system of fuel supply might be disturbed if refineries shut operations due to losses in the current scenario. He urged the government to announce a bailout package for the industry to enable it to continue operations.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #9 on: December 13, 2009, 08:37:47 PM »
Refineries’ oil output dips 6% in November

KARACHI: Local refineries production of various process oil products slowed down in November, dropping to 6 percent as compared with the proceeding month.

The provisional figures obtained showed the oil-refining companies has produced 0.65 million tonnes of various energy products in November 2009 as against the production of October.

Cumulatively in Jul-Nov 2009, the total refined oil production stood at 3.5 million tonnes compared to 3.8 million tonnes in the corresponding period last year and reflected a fall of 8 percent year-on-year.

Furnace oil too saw a decline in its production of 16 percent YoY. The only product registering an increase in production was Mogas, showing a growth of 3 percent YoY basis.

Oil sector analysts said that the overall dip in production can be attributed to the persisting circular debt situation. A scheduled maintenance shut down at National Refinery Limited (NRL) in July 09 was another causal factor behind the slump.

Pak-Arab Refinery Company (PARCO) maintained its leader position. Its production enhanced its market share to 42 percent from 40 percent earlier. This gain was primarily a consequence of a relatively better performance in FO, HSD and Jet fuel segments, where the company was able to improve market share by 4 percent, 1 percent and 4 percent, respectively. Attock Refinery (ATRL) too saw an improvement in its market share.

This was mainly led by a comparatively better performance in its FO production, where it witnessed a YoY decline of 2 percent versus a 16 percent fall experienced by the industry. A flat HSD production level in this period also helped ATRL in improving its overall market share.

NRL and Bosicor on the other hand, lost ground by 3 percent and 1 percent respectively. PRL’s share remained unchanged staying around 18 percent.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #10 on: December 18, 2009, 12:53:56 PM »
Turning Neutral on refineries
KASB Research

We change our stance on refining sector from Underweight to Neutral in the backdrop of 24%
underperformance in the last 6 months (9% in 3 months) against KSE-100 index. While the
sector’s overall valuation at 1.2x FY10E P/BV may look a bit stretched, we highlight, market is yet
to price in the impact of key triggers (1) the upgrade in deemed duty on diesel from 7.5% to 10%
and (2) resolution of inter-corporate debt. NRL remains our preferred pick in the sector given its
defensive earnings profile, clean balance sheet and undemanding valuation (FY11E P/BV of 0.7x).

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #11 on: December 19, 2009, 10:36:59 AM »
Refineries providing inaccurate loss figures: PC
ZAFAR BHUTTA
ISLAMABAD (December 19 2009): The Planning Commission (PC) has accused the oil refineries of providing inaccurate loss figures under the existing ex-refinery pricing formula, Business Recorder has learnt. Oil refineries and members of the high level committee tasked to resolve genuine concerns of oil refineries failed to develop consensus due to opposition of energy chief of Planning Commission who questioned the losses shown by the refineries.

"Another meeting will be held to review the pricing formula after seeking feedback from refineries on their report under the existing pricing mechanism," sources added. Refineries have claimed that due to reduction in 'deemed duty' on high speed diesel (HSD) from 10 percent to 7.5 percent from August 1, 2008, their profitability has substantially declined.

National Refinery (NRL) claimed a loss of Rs 157 million, PRL, Rs 672 million, ARL Rs 553 million and Bosicor Rs 9.486 billion during the first quarter of current financial year 2009-10. Sources said that Chief of Energy, Planning Commission, Arshad Maqsood Malik, rejected these figures submitted by oil refineries to the committee in a meeting held on Thursday. He requested a revisit of the loss statistics provided by the refineries. Oil refineries' representatives requested the committee to provide them with a safety net.

Three proposals were discussed in the meeting for new ex-refinery pricing formula:

(i) to replace the current ex-refinery formula based on deemed duty with guaranteed return formula to provide "safety net" to the industry. Prior to 2002, all refineries were guaranteed a minimum of 10 percent and maximum 40 percent return on their paid-up capital. This guaranteed return formula was abolished in 2002 under the deregulation policy. The new formula allowed the refineries to charge 10 percent deemed duty on HSD which was reduced to 7.5 percent on July 31, 2008 when oil prices shot up to $147 per barrel;

(ii) processing fee; and (iii) enhancement of deemed duty on HSD from existing 7.5 to 10 percent. The refineries' representatives expressed willingness to accept the abolishment of deemed duty in the event that the government agreed to restore the guaranteed return formula in effect prior to 2002. During a meeting of the committee held last month, refining industry had also requested that oil prices be reviewed on fortnightly basis, instead of monthly basis, to secure them from margin losses due to fluctuation in global oil prices.

The average price of oil in the past month is taken to calculate the price in the country, and oil refineries argue that fluctuation in price of crude oil in international market has placed oil refineries in the negative Gross Refinery Margin (GRM) category. The fortnightly price fixation system was changed to monthly from February 1, 2009.

The meeting was informed that almost all special reserves generated under the current ex-refinery formula had been consumed to offset the losses and the amount left in the reserve is inadequate to raise equity to undertake any project for expansion/upgradation of the refineries.

The refineries further requested for incentives to set up projects like hydro de-sulphurisation. Refineries requested that the completion dates of hydro de-sulphurisation (HDS) project should be reviewed as there had been a delay in finalisation of the amendments in the existing ex-refinery formula.

Offline Karuli

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #12 on: December 19, 2009, 02:25:44 PM »
Toshi Bhai Thanx

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #13 on: December 21, 2009, 09:02:51 AM »
Ministry fails to finalise refineries' pricing formula
MUSHTAQ GHUMMAN
ISLAMABAD (December 21 2009): The Ministry of Petroleum and Natural Resources failed to finalise a revised ex-refinery price formula due to lack of consensus among the stakeholders, including oil refineries, sources told Business Recorder.

A report, prepared by the National Accountability Bureau (NAB), shows that refineries made huge profits in the past, but did not spend the money on expansion as required. The Petroleum Ministry held two meetings of the committee constituted by the Minister for Petroleum in the light of the Judicial Commission report on oil and gas pricing. The committee is viewing different scenarios and options on pricing formula presented by the refineries and other committee members to reach a pricing formula acceptable to all stakeholders.

Adil Khattak, Managing Director, Attock Refineries Limited (ARL), in his comments stated that if the refineries are termed as national strategic assets, then they must be duly compensated. He warned that if refineries are closed, the country would lose not only a strategic asset but consumers will have to pay much higher prices for imported products as in the case of MS.

He insisted that the government has to decide whether the local refineries are necessary for the economy or not. If the answer is in the affirmative, then a reasonable return to refineries must be ensured for their survival as recognised in the Judicial Commission report.

He categorically denied that deregulation is the solution. He said he informed the committee that these refineries have not hydro skimming, and that the country could have faced acute shortage of furnace oil under the prevailing circumstances of power shortage.

He refuted allegations that refineries had looted/plundered public money, and suggested an independent auditor to look into the finances of the refineries.

"This is just an allegation, which needs to be proved and inaccurate public perception in this regard needs to be cleared," he added. Aftab Ahmad of Pakistan Refineries Limited (ARL) stated that one should understand that refineries profitability depends on the difference between crude and products price, especially of HSD. The higher the difference between crude and HSD prices the greater the profit. Exchange rate has a considerable impact on refineries profitability, he added. Under the existing scenario, the refineries are on the verge of closure all around the world.

According to Khattak, ARL bulk of profits were transferred to Special Reserves as per formula. Secretary, Petroleum was of the view that that there is no doubt that the refineries have made profits. However, the Ministry agreed that there was no plundering /looting. He further stated that the government wants refineries to earn a reasonable profit. He asked the refineries to propose a mechanism which can ensure refineries' survival even when the oil prices drop in the international market.

Khattak said that 10-40 percent mechanism can be adopted. But added that the government should first decide whether the refineries should exist or not. He also told the committee that local refineries can not compete with Middle East refineries, as Pakistan's refineries have to import crude.

He highlighted the benefits of the refineries to the country like strategic storage, smooth supply of products particularly furnace oil for thermal power, taxes/duties paid to the GoP and employment opportunities.

Secretary, Petroleum assured the refineries that the government is already making sincere efforts to resolve the issue of circular debt. A former senator, Rukhsana Zuberi, admitted that the refineries are an important need of the country. Past policies favoured the refineries. She also informed the committee that she never said that the refineries had looted/plundered public money but had noted that the refineries had made huge profits, and the special reserves had not been used appropriately.

She said that refineries' survival should not be at the expense of consumers' miseries. Refineries should be run efficiently through deregulation, she proposed and added that refineries should do business as other businesses. The refineries have not gone into losses but have suffered reduced profits, she maintained.

At this point, Khattak reiterated that refineries had suffered losses due to the narrow difference between crude and product prices. Rukhsana responded by pointing out that the import price was still lower than the local ex-refinery price, to which Khattak replied that the import price of MS, JP-I and even HSD was higher than the local price. Wasi Khan of Bosicor said that neither the crude price nor the product prices are under refineries' control. The profitability of refineries is totally dependent on crude & product prices.

Aftab Hussain of PRL informed the committee that under the prevailing circumstances, the refineries are in trouble world-wide. The margins of Singapore refineries have become negative. The GRM of American refineries has declined from $30 to $5 per barrel. Aftab further stated that the government may remove the deemed duty if it so desires but to ensure the refineries' survival it would have to take some other measures. Aftab said that refineries' profit is a phenomenon of crude and HSD prices as the margin depends on HSD and crude price difference. He further elaborated that deemed duty is only on HSD @ 7.5 percent whereas in India it is on all the products.

Feroz, Parco representative, said that banks are reluctant to open L/Cs.

The Secretary urged the refineries to examine different options and bring forward a mechanism which would ensure refineries' survival.

Aftab of PRL demanded that safety nets are essential and they can be reviewed after one year. He suggested the same formula be adopted as is in operation in India based on deemed duty. In India, the deemed duty is on MS, SKO, HSD and 5 percent on furnace oil. Sales tax is 20 percent and above in India.

Wasi also demanded safety nets for refineries.

Rukhsana replied that she never objected to taxes; it is the prerogative of the government to levy taxes. The comparison with Indian prices is not justified because Indian prices arc higher due to higher taxes. There is no competition among the oil industry despite reasonable margins, she alleged. "The Indian refineries have developed but we are not upgrading/expanding our refineries," she added.

Amir Abbasi of Bosicor replied that "we are not interested in pricing formula of petroleum products; rather we need assurance on the following: (i) Refineries do not lose money ie we can not afford losses; (ii) Reasonable return to refineries; and iii) Up-gradation of refineries". He asked Rukhsana to appoint any independent auditor to work out GRM. He said that refineries in Saudi Arabia are operating on world scale level and are cost-centric. Refineries just process crude and the companies earn revenues through marketing, etc. Wasi said that import parity formula prices are unjustified.

Mahmood Akhtar, FA (P&NR) of Finance Division, stressed the need for the refineries to propose different options like fixed return formula vis-a-vis current formula as an outcome of the present crisis.

Arshad Maqsood of Planning Division said that refineries have made profits. However, they did not undertake any expansion/development. He said that another committee on formula has finalised the recommendations, which should be discussed with some modifications.

Secretary Petroleum clarified that the earlier committee on pricing formula comprised of only government and oil experts, and public representatives were not part of that committee. As such, the current committee has to finalise its recommendations independently as it is being represented by all stakeholders.

Arshad of Planning Division proposed that a technical subcommittee should be formed to finalise the formula. Mehmood Alam of FBR supported the proposal for subcommittee. Representative of Ogra Jawad Nasim did not support the proposal.

Aftab of PRL said that they are ready to work on different options, provided the parameters are given to them. The FA (P&NR) stressed on the sustainability of the refineries. DG (Gas) Naeem Malik was of the view that refineries should make a proposal to include 10 percent processing fee with different paid-up capitals.

Sakib Sherani, Principal Economic Advisor to Ministry of Finance, said that there should be no dispute on refineries' accounts as these are audited figures and these should be accepted. Fixation of prices under existing formula has backfired badly.

One of the representatives of the refineries explained that refineries are highly capital-intensive and if funds are not raised no funding from banks will accrue.

According to him, there had been expansion in refining sector of Pakistan like setting up of Parco, expansion in ARL and Bosicor and funds are to be raised for further expansion in refineries. Masood Abdali of Chamber of Commerce said that there are two components of pricing ie cost of the product and GoP taxes. He suggested focusing on reducing taxes. It is not logical, he added, to fix prices without considering the crude and its processing cost to refineries because the refineries are dependant on crude cost. The next meeting of the committee is scheduled for December 23, 2009 as the Supreme Court of Pakistan has given one month deadline (till December 24) to submit report on oil pricing formula.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #14 on: December 24, 2009, 08:54:12 AM »
End of deemed duty on HSD: Oil refineries to face annual loss of Rs 1-3 billion
ZAFAR BHUTTA
ISLAMABAD (December 24 2009): Oil refineries will face annual revenue loss of Rs 1 to 3 billion after elimination of deemed duty on High Speed Diesel (HSD) calculated at the price of last financial year 2008-09, Business Recorder has learnt. A meeting of the high-level committee on ex-refinery pricing formula on Wednesday failed to develop consensus on proposals regarding new pricing formula.

The highest FOB price of HSD was recorded in July 2008 at $176.14 per barrel in international (Arab Gulf) market. The committee discussed different options for new ex refinery pricing formula in a meeting. Oil refineries submitted accounts of July-June 2008-09 before the committee required to finalise the proposals. The process fee was also discussed in the meeting that could be $1-1.5 per barrel for oil refineries.

According to working regarding the impact of elimination of deemed duty on HSD, refineries will have to face a loss of Rs 1-3 billion per annum and the price of HSD will be reduced by 3.5 per litre. Refineries have claimed that due to reduction in deemed duty on HSD from 10 to 7.5 percent effective August 1, 2008, the profitability of oil refineries had substantially reduced.

National Refinery Limited (NRL) claimed a loss of Rs 157 million, PRL Rs 672 million, ARL Rs 553 million and Bosicor Rs 9.486 billion during the first quarter of current financial year. Oil refineries have requested the committee to replace the current ex-refinery formula based on deemed duty with guaranteed return formula to provide safety net to the industry. Prior to 2002, all the refineries were guaranteed a minimum of 10 percent and maximum 40 percent return on their paid-up capital.

This formula was abolished in 2002 under the deregulation policy and the new formula allowed the refineries to charge 10 percent deemed duty on HSD which was reduced to 7.5 percent on July 31, 2008 when oil prices shot up to $147 per barrel. Sources said it was noted during the meeting that the government would have to pay Rs 2-5 billion to refineries as compensation under guaranteed return formula based on price during 2008-09.Under this formula, the price of HSD would decline by Rs 3 per litre to benefit consumers.

When contacted, Secretary Petroleum Mahmood Saleem said the committee discussed different options on the new proposed formula but it had not finalised any proposal. He said the committee would hold another meeting after Muharram for deliberations on the proposals. Sources said the refineries had expressed willingness to abolish deemed duty in case the government restored the guaranteed return formula. Under this formula, the government will compensate oil refineries if their profit that remained below 40 percent.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #15 on: December 24, 2009, 10:40:05 PM »
Refineries could benefit from pricing changes
KASB Research

???? The available details on potential tweaking in oil pricing formula suggest the
changes should be earnings and valuation neutral for oil marketing companies but
can prove to be positive for refineries.
???? We view the deregulation of freight cost and product prices a positive step, but we
believe the need for strict monitoring to avoid collusion and misuse is warranted.
???? Assuming margins on kerosene, gasoline products are fixed based on diesel
formula, we calculate <1% impact on PSO and APL earnings.
???? We estimate US$2/bbl processing fee can lead to potential earnings upside of
PRs2-11/share for domestic refineries, however in case the government set the fee
at <US$1.5/bbl, we see negative earnings impact.

Reportedly the committee has also proposed (1) replacing deemed custom duty of 7.5% on diesel
with processing fee of US$2/bbl of total crude processed in addition to GRMs earned by the
refineries, and (2) 5% floor and 40% ceiling on returns to be earned by fuel refineries. We estimate
US$2/bbl processing fee can lead to potential earnings upside of PRs2-11/share for domestic
refineries. However in case the government sets processing fee at <US$1.5/bbl, we estimate
refineries will suffer incremental negative earnings impact (see side column for incremental
earnings sensitivity to processing fee). Refineries have earlier demanded higher deemed custom
duty of 10% and better gasoline prices which would have resulted in higher earnings upside
compared to the upside calculated for US$2/bbl processing fee.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #16 on: December 26, 2009, 05:07:01 AM »
Oil crisis in the offing
MUSHTAQ GHUMMAN



Saturday, 26 Dec, 2009 4:32 am
ISLAMABAD : With the country in the grip of a power crisis, it has been reported that an oil crisis is ready to happen. Pakistan has five major oil refineries, with the following designed capacities: Attock Refinery Limited (ARL), 40,000 BPD, Pakistan Refinery Limited (PRL), 48,000 BPD, National Refinery Limited (NRL), 62,500 BPD, Bosicor Pakistan Limited (BPL), 30,000 BPD and Pak Arab Refinery Limited (Parco) 100,000 BPD.

Combined capacity of the five is 280,500 BPD approximately while demand is over 400,000 BPD. It is evident from the latest balance sheets of the five refineries that with the depressed refining margins in the wake of global economic meltdown and unresolved issue of circular debt, the refineries will not be able to continue their operations for more than a few weeks.

The business environment offered to the local refineries revolves around a pricing formula, which requires the local refineries to sell their products at Middle East marketplace prices, commonly known as Arab Gulf market. The formula, however, does not take into account the price of feedstock, crude oil, which is the most crucial element in the making of gross margin for a refinery (GRM), based on a set of product pricing.

According to oil sector analysts, in normal circumstances, like those prevalent before the onset of economic recession, the movements (upward and downward) of crude oil and products prices remain consistent with each other thus keeping the GRMs all the more constant.

However, this is not presently the case as the dynamics of supply and demand are at odds for crude oil and products. Opec quota reduction has largely impacted the Middle Eastern market where, as a result, crude oil prices are the highest in the world these days. On the contrary, the products in the Arab Gulf are being sold at lower prices due to a glut situation caused by lower demand, again due to economic recession in the main consumption centers.

Another contributing factor in the product glut is the higher production emanating from the regional refineries where the Opec quota is not applied. The resultant inconsistency in the prices of crude oil and products has given rise to highly negative GRMs for the local refineries, which source their crude oil at higher prices from Arab Gulf market and are compelled to set their products' prices at low Arab Gulf prices.

With price of output lower than cost of input, it does not make economic sense for refineries to continue the operations, which result in losses of billions of rupees on a monthly basis. In a nutshell, the pricing formula for the local refineries has failed to protect these strategic assets and thus requires an immediate review to ensure sustainability of the operations for the local refineries, analysts added.

According to them, problems of refineries are further aggravated by the fact that Pakistan State Oil (PSO) continues to default in its payment of product bills to local refineries thus resulting in very high financial charges. Default by PSO on its payment obligation is second major issue confronting the refineries.

One refinery source is concerned that the "amount of overdue payables to refineries is being utilised by PSO to either finance its increasing imports of petroleum products at the expense of local refineries loss of production or these funds are blocked as a bad commercial debt of PSO. This has already been communicated to the Ministry of Petroleum and Natural Resources, however, no action has been taken by the government yet to save precious foreign exchange by providing a conducive environment to increase production from the refineries and lowering imports via PSO.

The refineries in a letter, sent jointly by the CEOs of ARL, NRL, PRL, BPL and Parco, to the Minister for Petroleum and Natural Resources have already highlighted that the non-resolution of issues of revision in pricing formula and PSO defaulting on its payments to the refineries, leaves refineries with no cash to operate and very soon they will be shutting down completely.

In addition to the issue of non-payment of overdue payables by PSO and negative GRMs, refineries' profitability has also been affected by the negative impact of depreciation of Pak rupee versus the US dollar. The oil industry sources said in determining oil prices in Pak rupee, Ogra uses historical average of exchange rate prevailing in the previous months; while refineries make payment to the crude oil suppliers based on spot exchange rate prevailing at the date of payment.

Thus the burden of any deprecation of PKR due to the time lag is unjustifiably borne by the refineries. "If these issues of refinery sector are not resolved on an immediate basis, the refineries would be shutting down their operations very soon, which would result in drying up of fuel at filling stations and will leave the nation stranded," said one of the officials of a refinery on condition of anonymity.

Offline sumbul

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #17 on: December 26, 2009, 10:16:05 AM »
I strongly urge all of you to avoid refineries at this point in time

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #18 on: December 30, 2009, 02:01:12 PM »
Petroleum products pricing formula review
The Supreme Court of Pakistan is to take up the matter of removing anomalies in the oil pricing
formula on 31st December 2009 after the expiration of the deadline given to an experts’
committee of the Government to resolve the issue. The experts’ committee has prepared a 5
point pricing formula in accordance with reforms program worked out with the IMF. Based on
newspaper reports the following are the key highlights of the proposed formula: 1) Fixing the
per litre rate of commission for oil marketing companies (OMC margin) and dealers (DC) at the
existing level, 2) Capping General Sales Tax (GST) on petroleum products at the current level, 3)
Replacement of deemed duty on diesel with a fixed processing fee, 4) Elimination of inland
freight equalization margin (IFEM) on all petroleum products and 5) Deregulation of HOBC, light
diesel oil (LDO) and jet fuels.
However, it is expected that the Government will seek a 3 week extension of the deadline as the
minister and secretary of finance had been busy in talks with the IMF on macroeconomic
policies and were not able to examine financial implications of a five?point pricing formula
prepared by the experts’ committee.

Toshi

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Re: E&P, OMC, Refinery & Chemical Sector
« Reply #19 on: December 30, 2009, 02:01:53 PM »
Impact on Oil Marketing Companies (OMCs)
The impact on oil marketing companies is expected to be neutral in the short term as margins
will be fixed at current levels. In the longer term, the impact will be slightly negative as OMCs
won’t realize the inflationary impact and the growth will only come from volumetric sales.
Previously, the margins were calculated at 4% of Ex?Refinery Price + IFEM. On the positive side,
fixed margins will imply steady returns for OMCs even if oil prices are volatile. Deregulation of
HOBC, LDO and Jet Fuel is expected to have minimal impact on OMCs as prices are already set
according to international prices and the these products make up only a small percentage of
overall OMC sales. Fixing the GST will imply relief for consumers in high oil price environment
while the removal of IFEM will mean that prices, of petroleum products that are to be affected,
will vary in different parts of the country based on transportation costs.