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FY20 has been an exceptionally challenging year for businesses – more so for the oil and gas refining sector. Not only did the coronavirus pandemic in the 2HFY20 hit the sector hard, slower economic growth in the fiscal year leading to lower overall petroleum consumption, the furnace oil crisis and crashing oil prices also weighed heavy on the sector’s profitability. But apart from these exogenous factors, the state of the refineries in the country and their inability to upgrade all these years has been a key factor in the debilitating downstream oil refining sector.

Atock Groups’ two refineries - Attock Refinery Limited (PSX: ATRL) and National Refinery Limited (PSX: NRL) are part of the only four listed refineries. Profitability of these refineries has nose-dived, and the earnings continued to run into losses in FY20 after a weak FY19. The only positive thing about FY20 performance is that their losses halved on a year on year basis.

Attock Refinery posted a loss after tax of Rs2.8 billion, which was lower by 48 percent year-on-year from FY19. And National Refinery Limited, which is also a lube refinery posted a loss after tax of over Rs4 billion for FY20, which was 53 percent year-on-year lower than the losses incurred in FY19. While the revenues of the two refineries continued to fall, the decline in losses for ATRL stemmed primarily from over 80 percent decline in finance cost. However, for NRL, a look at loss before tax shows that the losses increased by over 35 percent year-on-year in FY20 despite a decline in finance cost.

A key issue for the two refineries has been the FO upliftment and reduction in its price in FY20. And then the impact on operations because of COVID-19 and the related restrictions in the country. Attock refinery had to reduce its capacity to minimum (around 20-30%), while NRL was forced to halt operations and close the refinery temporarily during the year.