China backs Karachi refinery
By Syed Fazl-e-Haider
KARACHI - China is to invest US$535 million to restart a stalled refinery
project in Pakistan, which foreign investors and contractors abandoned amid the
political turmoil in the country following the assassination of former prime
minister Benazir Bhutto in December 2007.
The Indus Refinery Ltd (IRL) was a joint venture project between Middle
East-based investors with an 86.7% shareholding and local sponsors with 13.3%,
proposed in 2004.
"The Chinese have been really helpful," The News quoted IRL chairman Sohail
Shamsi as saying. "I thought no one would come
and invest in the country. We tried to convince several Middle East investors,
even the monarchs. But no one was interested."
The Chinese will replace the Middle East-based investors, after IRL signed a
contract with the government in Beijing for the civil works for the project to
be restarted, possibly as early as next month.
The China International Project Investment Management Center this month signed
an agreement with IRL to establish the refinery, which will be the country's
largest in the private sector. China National Chemical Engineering Group Corp
is expected to be the contractor starting the physical work on the project. As
a result of using the latest production technologies and through economies of
scale, it will have a competitive edge over Pakistan's existing refineries.
IRL will be the sixth refinery in Pakistan, after National Refinery, Pakistan
Refinery, Attock Refinery, Pak-Arab Refinery and Byco Petroleum Pakistan Ltd
(BPPL). The country has an installed refining capacity of 12.82 million tonnes
a year, but the country's five refineries together produced only 8.11 million
tonnes in the fiscal year ended June 2010, an 8% decline over the previous
year, against local demand of 20.3 million tonnes of petroleum products.
Registered as a public company in 2004, IRL had later engaged world-class
engineering firm SNC Lavalin of Canada to act as project manager, Ventech
Engineers International as process engineer, and advisory firms Jacobs
Consultancy and Vitol. The civil work on the project was started by Descon
Engineering in 2007.
However, the foreigners working on the project in Karachi packed up their bags
and left the country in the aftermath of Bhutto's assassination during her
election campaign in December 2007. The Chinese will now be the lead investors
and contractors.
Despite Pakistan's worsening internal security, the Chinese government and
Chinese companies have shown themselves keen to invest in Pakistan's energy
sector, which desperately needs foreign investment. Most recently, oil
exploration company, Zhenhua, has shown interest in increasing its interest in
Pakistan Petroleum Ltd (PPL), the nation's top oil producer. The Chinese
company already partners PPL in some joint ventures.
Last week, Zhenhua vice president Heyang Zuxi called on Federal Minister for
Petroleum and Natural Resources Syed Naveed Qamar in Islamabad and told him
about the company's plan to invest in PPL, whose output has been hit by the
recent floods that have swept Pakistan, inundating some production blocs and
cutting PPL production by about 7 million cubic feet.
China was also earlier interested in constructing an oil refinery in Gwadar, in
southern Balochistan province. Petroleum products refined there were to be
transported by pipeline through Pakistan to Kashghar in China. The Gwadar
project, however, was deleted in the last financial year from the financial
development program agreed between the two countries, reportedly in reaction to
the global economic recession.
Unlike the Gwadar project, they IRL refinery output will be predominantly for
domestic market. "They [the Chinese] are not investing in Indus Refinery to
export products from here to China, but petrol can be exported," IRL chairman
Shamsi told The News.
United Arab Emirates' state-run International Petroleum Investment Co (IPIC)
has also halted work on the $5 billion Khalifa oil refinery project in coastal
Balochistan. The project was suspended last January due to technical and
political reasons. IPIC holds a 74% stake, and Pakistan-Arab Refinery Co the
remainder.
About 50% of Pakistan's energy needs are met by indigenous gas production, 29%
by domestic and imported oil, and 11% by hydro-electricity.
Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author of many books, including
The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.
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