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National refinery Limited

The second largest refinery in the country is involved in the business of refining crude oil since 1966. It is a petroleum refining and petrochemical company engaged in manufacturing and supplying a wide range of fuel products, lubes, asphalts and specialty products for domestic consumption and export. After inception, NRL added two refineries, one in 1977 and the other in 1985 and since then it has been involved in revamping and upgrading these facilities.

The company has two basic business units: Fuel Segment and Lube Segment. Fuel segment is primarily a supplier of fuel products offering HSD, naphtha, motor gasoline, LPG, jet fuels, and FO while it exports naphtha. Lube segment is a primary provider of different types of lube base oils, asphalts, and waxes, while it also exports lube base oils. NRL is the second largest refinery in the country in terms of crude oil processing and the only refinery that processes lubricants in the country.

NRL PERFORMANCE IN FY12 In the refining sector, the performance of the two refineries, Attock Refinery Limited and National Refinery Limited, was in stark contrast during FY12. The former gained significantly from the non-refinery operations, while high cost and dwindling margins become the fate of the latter.

The year FY12 was marked by curtailed margins and reduced throughputs for National Refinery Limited. The top line growth of 17 percent year-on-year during the same period was not enough to harness the cost escalation. Sadly, the cowed sales of furnace oil, narrow margins and depressed base oil and lube market globally throughout the year also wreaked havoc on the only lube refinery in the country. This was reflected by a sizeable drop in the bottom line. The gross margins and the net margins during FY12 lost substantial 400 and 300 basis points respectively year-on-year due to finance cost and higher taxation.

NRL PERFORMANCE IN 9MFY13 The company earns its revenues from its two business segments: fuel segment and lube segment. During 9MFY13, the fuel segment incurred a loss of Rs 16 million compared to profit of Rs 56 million during 9MFY12. And the refinery could operate at only 76 percent compared to 83 percent of the designed capacity in the similar period last year. One major factor behind the ghastly performance was wafer-thin gross refining margins due to fluctuation in crude oil prices and petroleum product prices.

Another factor that led to the fuel segment ending up in the red zone, and hence the decline in the company's overall profitability, was the reduction in the sales volumes of furnace oil largely driven by the unpaid dues of the power companies. Accumulating exchange loss of Rs 772 million also placed a lid on net earnings due to depreciating rupee versus the greenback, even when the finance cost during the nine month period fell by eight percent year-on-year.

In the lube segment, the base oil sales and exports have witnessed growth over the years. However, in FY12, the company faced tough time due to depressed lube and base oil market globally. During 9MFY13, the lube segment's profits stood at Rs 1952 million, a decline of seven percent year-on-year. On the whole, the company continued to feel the squeeze in its profitability from the globally depressed selling prices of Lube Base Oils and increased feedstock cost. The segment's throughput stood at 102 percent compared to 107 percent in 9MFY12. The dawdling road infrastructure and other development activity in the country affected the sales of asphalt.

THE BUDGET FY14 AND REFINERIES The budget FY14 was a non event for the refinery sector. As a result of the increase in overall turnover tax to one percent, both refining and oil marketing companies are not required to pay higher turnover tax and will only pay 0.5 percent of the Minimum Tax Rate (MTR) as stipulated by relevant tax laws. Relief in corporate tax rate for OMCs and refineries will improve earnings of the sector while GST hike shall be passed on.

OUTLOOK Gross refining margins, a success factor for refineries, have finally been seesawing during the nine months ending March 30, 2013. Gross refinery margins improved during 1QFY13 where the rupee was slight stable translating into lower exchange losses. Similarly higher oil prices also supported the margins of the refineries. The GRM's declined during the second quarter on average but eventually rose in the third quarter.

Going forward, National Refinery Limited along with other refineries in the country will benefit from the government's decision to enhance the import duty on high speed diesel from 7.5 percent to nine percent effective January 2016. The caveat here for the refinery industry is upgrading facilities for compliance of Euro II specifications by 2015 end.

Source: Company Accounts

Copyright Business Recorder, 2013


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Foreign Debt $60.9bn
Per Cap Income $1,368
GDP Growth 3.6%
Average CPI 7.5%
Trade Balance $-1.558 bln
Exports $2.117 bln
Imports $3.675 bln
WeeklyJuly 10, 2014
Reserves $14.638 bln