Pakistan State Oil (PSO) has appointed a financial advisor to determine a range of possible values for the shares of Pakistan Refinery Limited (PRL) in a bid to negotiate a price to Shell International Petroleum Company Limited (SIPCL) to acquire its 30 percent shares.
PRL situated on the coastal belt of Karachi is a hydro skimming refinery designed to process various imported and local crude oil to meet strategic and domestic fuel requirements of the country. The refinery has a capacity of processing 47, 000 barrels per day of crude oil into a variety of distilled petroleum products such as furnace oil, High Speed Diesel, kerosene oil, jet fuel and motor gasoline, etc.
In a meeting of Board of Management (BoM) of PSO held on February 9, 2011, due diligence and progress reports were presented and no decision was sought to acquire 30 percent shares of Shell in PRL, one BoM member said adding that it was merely to update the board. "Board has neither deferred nor rejected the acquisition of Shell's shares in PRL," he said adding that they also understand backward integration is important for the PSO to have a confirmed supply source.
"PRL has currently negative equity and accordingly the management of PSO feels that it can be purchased at a reasonable price," sources said adding that PSO understands that once it does acquire Shell's shares in PRL it will have to go for expansion of the refinery to make it profitable. "The discretion of whether or not to go into a bidding process lies with the seller of the shares, ie Shell," sources added.
PSO has appointed a financial advisor to determine a range of possible values for the shares of PRL in accordance with internationally recognised valuation methodologies. "Using these ranges of values, PSO will be in a better position to negotiate a price to be offered to Shell for their shares. The financial advisor has also been appointed in accordance with the PPRA Rules," sources added.
Private sector is also lobbying to get shares of Shell in PRL. "Moreover, if Shell approves, such buyers would have to approach the Board of PRL to obtain permission for such due diligence," sources added. The Board of Directors of PRL had given provisional approval in this regard in its meeting held on June 30, 2010, subject to agreed purpose and terms of reference of the due diligence exercise. PRL supplies 30-40 percent of the fuel to PSO.
At present, PSO has 18 percent shares and after acquiring the shares of Shell, its total shares would be 48 percent in PRL. The shares of other stakeholders will remain as follows: Caltex 12 percent, National Bank of Pakistan 8 percent, National Investment Trust (NIT) 6 percent and individual shareholders 26 percent. "After acquiring the shares, PSO would invest in the refinery to enhance its refining capacity by 50 to 70 percent to 100,000 barrels per day from existing 47,000 barrels per day to ensure confirmed source of refined fuel," sources maintained. "Due to circular debt issue, PSO is facing problems in fuel supplies and after acquiring more shares in PRL, it would be secure in getting petroleum products," sources maintained.
At present, fuel consumption has surged to over 9 million tons from 7.9 million tons due to greater reliance on thermal power generation. The refining capacity of oil refineries ranges between 2.6 million tons to 3.5 million tons. "The country depends more on imported products and after increase in PRL refining capacity, the country's reliance on imports will be reduced," sources added.