Karachi August 16 2021: Pakistan Refinery Limited Auditor raises serious doubts over company’s ability to operate as a going concern, as per noticed Issued at the Pakistan Stock Exchange (PSX).
As per the notice, the financial statements indicates that the Company has accumulated losses of PKR 18.18 billion as at June 30, 2021 and, as of that date, the Company's current liabilities exceeded its current assets by PKR 17.80 billion. These events or conditions, along with the other matters, indicate that a material uncertainty exists that may cast significant doubt on the Company's ability to continue as a going concern. Auditor did not give modified opinion in respect to this matter.
As per company’s point of view, as at June 30, 2021, the Company's accumulated loss was PKR 18.18 billion (June 30, 2020: PKR 18.36 billion) and, as at that date current liabilities exceeded its current assets by PKR 17.80 billion (June 30, 2020: 16.84 billion). The Company ended the year with negative cash and cash equivalents amounting to PKR 5.46 billion (June 30, 2020: PKR 3.69 billion). These conditions may cast a significant doubt on the Company's ability to continue as a going concern.
A L S O || R E A D
ECC Approved Concessional Rates Of Electricity And RLNG For Export Oriented Sectors
Right issue of 1 ordinary share for every 1 share held amounting to PKR 3.15 billion, announced in February 2020 primarily to address negative equity and liquidity issues was completed during the year thereby increasing the share capital to PKR 6.30 billion.
During the year, the Economic Coordination Committee (ECC) of the Government of Pakistan approved a revised pricing mechanism effective September 1, 2020 which allowed refineries to announce ex-refinery prices of regulated products on fortnightly basis as compared to previous monthly basis. Under the revised mechanism, pricing of regulated products is based on average Freight on Board (FOB) price published by Platts for Arab Gulf Market plus PSO's actual premium, freight, incidentals (excluding ocean losses) and applicable taxes. Through the same mechanism, EURO V standard is introduced for pricing of Motor Spirit (MS) and High Speed Diesel (HSD) instead of EURO II resulting in a price differential element for refineries not producing EURO V standard MS and HSD.
Further, by changing crude recipe and operational philosophy during the year, the Company was able to produce IMO-2020 grade Marine Residual Fuel (MRF), a premium product and EURO II compliant High Speed Diesel for a certain year that enabled the Company to earn additional revenues. However, sustainable production of above high premium products is tied with long term crude arrangements. The Company's ability to produce Petrol (MS) 92, 95 and 97 RON resulted in saving of RON differential price adjustment on MS and also generated additional revenues to the Company during the year. In addition the continued availability of financing facilities demonstrate the confidence of financial institutions on the Company's business model supporting the liquidity management. All the above factors contributed positively and the Company earned profits during the period as compared to loss in the corresponding period.
Finance Act, 2021 introduced following amendments which have material impact on existing refineries:
• Reduction in rate of Minimum Tax on turnover from 0.75 percent to 0.5 percent;
• Decrease in rate of Custom Duty on crude oil imports from 5 percent to 2.5 percent;
• 10-year tax holiday for undertaking upgrade or expansion projects on profit earned therefrom; and Levy of General Sales Tax at the rate of 17 percent on crude oil purchases which were "zero rated" previously.
These measures will have a favorable impact on the future results of the Company.
Based on the above factors and their positive effect on Company's projections together with the continuous availability of financing facilities, the Company believes that it will meet the obligations and will continue to operate as a going concern for a period of at least 12 months from the date of approval of these financial statements. Accordingly, these financial statements have been prepared on a going concern basis and therefore, do not include any adjustments to the carrying amounts and classification of assets and liabilities that may arise if for any reason, the Company is unable to continue as a going concern, then this could have an impact on the Company's ability to realize assets at their recognized values and to extinguish liabilities in the normal course of business at the amounts stated in these financial statements.
