Karachi September 26 2022: National Refinery Limited (NRL) is planning to undertake three huge capital intensive projects, according to the information shared with the investors.
NRL is planning to install Hydrocracker/Bottom of Barrel upgrade for reduction in Furnace oil production, Continuous Catalyst Regeneration Platforming Unit to enhance motor gasoline production and turnaround at Lube-II refinery.
“Refinery projects involve huge capital investment and accordingly under the prevailing circumstances, your company is continuing its careful approach to start any new project” says company Chairman Mr. Shuaib A. Malik.
Hydrocracker / Bottom of Barrel upgrade Upgradation of Furnace Oil to value added products requires a huge capital investment. Your company along with other refineries have jointly undertaken a study for the feasibility of a joint plant. The study has already been awarded to M/s Advisian of UK. It is expected that the study will be finalized soon. Based on the outcome of the study together with improvement in country’s overall political and economic conditions as well as finalization of oil refining policy, a future course of action will be decided.
Secondly, to increase the Gasoline production and to meet the country’s Gasoline Euro-V specifications, Company is planning to install a CCR (Continuous Catalyst Regeneration) Platforming unit along with other associated units. The project is in planning phase.
Thirdly, company would be undertaking the turnaround of Lube-II Refinery. This will result in continuous production of plant at optimum level without frequent maintenance requirements.
“Business sentiments in the country are facing serious macroeconomic challenges in the form of rising external vulnerability risk which has been amplified by rising inflation, particularly in the context of political instability, substantial depreciation of Pak Rupee against US dollar and high interest rates” says company Chief Executive Officer Jamil A. Khan.
He added, “These uncertainties further aggravated due to escalation of the conflict between Russia and Ukraine following the full-scale invasion by Russia at the end of February 2022 resulting in geopolitical instability which led to higher petroleum product prices and supply chain disruptions. Furthermore, negative outlook of the country as well as that of top tier local banks by international credit rating agencies towards the end of the year also exposed the crude oil imports to letter of credit confirmation risk and higher cost. These factors are negatively impacting Company’s overall performance. Your Company has been following a vigilant approach by operating its production at optimum level”
“The customs duty levied on crude oil in 2015, which was reduced to half by the government through the Finance Act, 2021 has been once again increased to 5% through the Finance Act, 2022, which will not only impact Company’s profitability due to increased working capital financing costs, but will also further drain the Company’s already cash-strapped position. The recent change in the Government has again slowed down the progress on Refinery Policy which may require a realignment of strategy for further discussions” says company Chief Financial Officer Nouman Ahmed Usmani.
Financial Results
The company earned profit after tax of Rs. 9.08 billion as compared to profit after tax of Rs. 1.77 billion in last year. The refinery sector witnessed improved margins due to higher demand of petroleum products as the world economies started to resume after more than two years of COVID-19 related restrictions. Russia’s full-scale invasion of Ukraine further added uncertainty and volatility in supply of petroleum products which resulted in higher product prices leading to better refining margins especially in last quarter of the year.
Fuel Segment
Fuel segment earned profit after tax amounting to Rs. 5.97 billion as compared to loss after tax of Rs. 3.03 billion during last year. Higher profits resulted primarily due to improvement in Gross Refining Margins (GRMs) arising from higher prices amid strong demand for finished products and lesser inventory losses owing to rising trend of products’ prices during the year. Margins further improved due to production of Euro-V standard High Speed Diesel resulting in entitlement of Euro-V product price and avoiding price differential charge. Depreciation of Pak Rupee against US $ resulted in substantial exchange loss in current period as compared to exchange gain in the corresponding period. Throughput declined slightly to 63% during 2021-22 as compared to 65% last year mainly due to turnaround of Fuel Refinery and its associated units during the period.
Lube Segment
Lube segment earned net profit of Rs. 3.11 billion as compared to Rs. 4.80 billion for corresponding year. Margins in lube segment declined due to higher feed cost despite increase in sales volume as compared to last year. Export sales of Bitumen improved significantly and your company managed to export 62% higher Bitumen as compared to last year; thereby reducing overall Bitumen inventory level from 33,857 M.Tons last year to 11,205 M.Tons at year-end. Due to continuing losses in fuel segment during last few years and sharp increase in crude oil prices during the period, the Company’s working capital financing requirement increased considerably. Moreover, due to higher interest rates, the Company incurred financing cost amounting to Rs. 2.89 billion as compared to Rs. 1.57 billion in last year.
About the Company
The Company is engaged in the business of Crude Oil Refining with three refineries commissioned in the year 1966, 1977 and 1985. Recent upgradation includes Diesel Hydro Desulphurization and Isomerization units commissioned during the year 2017 and 2018 in order to produce environment friendly low Sulphur HSD ranging from Euro II to Euro V standard and to convert Naphtha into Motor Gasoline respectively. Further, through revamp of fuel and lube – I refinery, company has increased its crude oil processing capacity from 62,050 barrels per day to 70,000 barrels per day and production capacity of lube base oil by 5000 – 6000 MT per year.
The Company was privatized in the year 2005, whereby 51% shares of the Company are held by Attock Group.
The Company operates its three refineries into two business segments “Fuel Segment” and “Lube Segment”. Fuel Segment is the producer of High Speed Diesel, Naphtha, Motor Gasoline, Liquefied Petroleum Gas, Jet Fuels and Furnace Oil. Lube Segment produces multiple grades of Lube Base Oils, Bitumen, Furnace oil, Waxes, Rubber Process Oil and some quantities of other fuel products. The products are marketed locally, whereas Naphtha is exported. Some quantities of Lube Base Oils and Bitumen are also exported as per the requirement.
