Special Report
ISLAMABAD:
The government is being urged to prioritize brownfield refinery projects over greenfield projects, due to the significant cost savings and potential to save precious foreign exchange.
The objective of the Refinery Upgrade project is to produce Euro V standard fuels, with the upgrade costs of existing refineries ranging from USD 900 million to 1.5 billion. By upgrading existing refineries, the same objective can be achieved at just 1/10th of the cost, resulting in substantial foreign exchange savings.
Foreign investors are typically only willing to provide equity up to 30% of the project cost, with the remaining 70% in the form of local and foreign debt. In the current high interest rate environment, this could lead to significant USD outflows from Pakistan. Additionally, the actual value amount of incentives given to brownfield projects will be less than those given to greenfield projects, as brownfield projects produce less gasoline and diesel, resulting in lower duty collections.
The shareholders and management of existing refineries are focused on finding the most economically feasible route to meet the objective of producing Euro V fuels for their customers. If this objective can be achieved through brownfield projects at a significantly lower cost than greenfield projects, then management, shareholders, and policymakers should prioritize brownfield projects in the best interest of the country and consumers. This move could result in substantial cost savings, preserving foreign exchange reserves and promoting economic growth in the long term.
