The group imported a refinery that was owned by Chevron in Milford
Haven, UK. The entire refinery was taken apart and moved to Byco’s
600-acre site in Hub, Balochistan where it has since been re-assembled.
It took almost two years – from 2007 to 2009 – just to move the refinery
and another three years to reassemble it. PHOTO COURTESY: BYCO
KARACHI:
By global standards, Byco’s new refinery is not
technologically very advanced. In fact, it is not even new, having first
been set up in the United Kingdom in 1967. But it represents an
important step forward for the country’s refining sector, and Byco’s
competitors are likely to have noticed.
Byco Petroleum currently operates the smallest refinery in the
country, which has a capacity of processing about 36,200 barrels per
day. Its parent group, however, plans to expand the refining operations
by adding about capacity for about 120,000 barrels per day.
To do this, the group imported a refinery that was owned by Chevron
in Milford Haven, UK. The entire refinery was taken apart and moved to
Byco’s 600-acre site in Hub, Balochistan where it has since been
re-assembled and re-calibrated to operate in the Pakistani environment.
It took almost two years – from 2007 to 2009 – just to move the refinery
and another three years to reassemble it.
Byco’s main sponsors – the Abbasi family and the Dubai-based private
equity firm Abraaj Capital – have thus far invested $750 million into
the refinery project. “We will begin commissioning in the third quarter
of 2012 and will begin commercial production from October,” said
Muhammad Akram Paracha, the head of refining operations at Byco.
Yet it is not the size of the refinery that is impressive. After all,
the Khalifa Refinery being built not much further down the Balochistan
coast will be even bigger, with a capacity of about 250,000 barrels per
day. What distinguishes this refinery is its ability to process crude
oil beyond a level that is currently possible in Pakistan.
Tucked away in the massive refinery complex at Hub is a small segment
called the isomerisation unit, the first of its kind in Pakistan and
the pride and joy of the company’s engineers. This unit will allow the
refinery to convert 12,500 barrels per day of naphtha into motor
gasoline, commonly known as petrol. That may not sound significant, but
in the world of refining, it is big news.
A majority of the product produced by most refineries in Pakistan
yield negative margins, meaning that they sell for below the price of
the crude oil that went into making them. Furnace oil, liquefied
petroleum gas and naphtha yield either negative margins or at best flat
margins. Refineries make their money off diesel fuel and petrol, and
even there, the margins are quite narrow, often in the single digits.
Taken together, petrol and diesel constitute about 50% of the
refinery’s production. If, however, a refinery is able to add the
roughly 8% of its production that is naphtha and yields negative returns
into petrol – which yields positive returns – the refinery will
significantly boost its profitability.
Byco’s refinery may be old, but it is the only one in Pakistan that
will have the capacity to do so, boosting the company’s returns
significantly.
Other refineries are also trying to boost their processing
capabilities. Pak-Arab Refinery Company, currently the owner of
Pakistan’s largest refinery company, wants to begin producing asphalt
out of furnace oil, which yields higher margins.
So why are investors not happy?
Despite plans of becoming the largest refinery in the country, most
investors appear unimpressed with Byco. The reason: the new refinery
will not be owned by the publicly-listed Byco Petroleum, but rather its
unlisted parent company, Byco Oil Pakistan.
“Investors are not interested because it [the new refinery] is not
going to be part of the listed company,” said Fawad Khan, a research
analyst at KASB Securities. “There could be synergies going forward, but
the retail investor will get not benefit for now.”
Published in The Express Tribune, April 7th, 2012.
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