Refineries are facing tough times – in terms of profitability as well as their inadequate refining capacity the up gradation process in their recently announced financial performance, Attock Group’s refineries National Refinery Limited (PSX: NRL) and Attock Refinery Limited (PSX: ATRL) have seen their losses cement further. ATRL saw its earnings nose-diving from a profit of Rs579 million in FY18 to a loss of over Rs5 billion in FY19! Similarly, NRL posted a loss of over Rs8.5 billion in FY19 versus a profit of Rs1.77 billion in FY18.
The key challenge for the refineries has been the phasing out of furnace oil, where its slow up-liftment has adversely affected their operations. Apart from that, the refineries have been affected by higher crude oil prices and associated costs of inventory losses. As a result, the two refineries have seen their gross margins topple. ATRL’s gross margins fell further into the abyss in FY19, while NRL’s margin turned negative from 2.78 percent in FY18 to -2.77 percent in FY19.
What further pulled the bottom-line down was the finance cost escalating, which came from colossal exchange losses due to significant currency depreciation in FY19. Some support from non-refinery operations of ATRL reduced the losses for the year. The lube segment of NR however, remained under pressure due to asymmetrical increase in prices of lube products and also lowers sales volume of bitumen amid lower development activity in the country.
Refineries have to upgrade, especially when the need for furnace oil is falling sharply, and the government has also given a 5-year window to the existing refineries as well with similar concessions offered to new refineries to upgrade.
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