Pakistan Refinery Limited’s (PSX: PRL) came out of the negative earnings phase in FY16, and the right issue in FY15 and the commissioning of the firm’s Isomerisation plant have played an instrumental role in reducing the firm’s reliance on bank borrowing and increasing operational liquidity. The refinery has been able post growth in its earnings, which stood three times higher in FY17 versus FY16 due to improved refining margins, inventory management, a stable exchange rate and control over expenses. However, the other set of problems linger that the company has been battling.
PRL continues to face the high speed diesel pricing issue where the refineries have to pay the price differential between the actual import price and the notional ex-refinery price. This issue is likely to get worse with PRL unable to meet the deadline of June 30, 2017 set forth by the Ministry of Energy for installing Diesel Hydro Desulphurisation Unit (DHDS) to produce EURO II compliant HSD as the ex-refinery price will be adjusted downwards due to high sulphur content.
Another challenge that the refinery had faced since the beginning of FY18 was the deactivation of the catalyst of the isomerisation plant started in FY15, which resulted in the reduction of production of 12,000 tons of motor gasoline in 1QFY18 alone.
PRL’s financial performance for 1HFY18 announced on the stock exchange is also weaker than similar period last year, which has been particularly due to 2QFY18 that incurred a loss after tax of Rs203 million versus a PAT of Rs568 in 2QFY17. The key reason for lower earnings stems from higher cost of crude oil and condensate consumed, which dampened gross refining margins for the quarter.
While the firm is optimistic that it will reverse the situation with improvement in performance and with a detailed feasibility study to evaluate different technological variants for up-gradation of the refinery now in place, PRL has also faces uncertainty due to negative equity with a liquidity crisis where its current liabilities exceed current assets.
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