Analyst
Ali Arslan Malik
Ali.Arslan@pacra.com
+92-42-35869504
www.pacra.com
Applicable Criteria
Related Research
PACRA Maintains the Entity Ratings of Pak Arab Refinery Limited
Rating Type | Entity | |
Current (08-Dec-23 ) |
Previous (09-Dec-22 ) |
|
Action | Maintain | Maintain |
Long Term | AAA | AAA |
Short Term | A1+ | A1+ |
Outlook | Stable | Stable |
Rating Watch | - | - |
The ratings incorporate PARCO's ownership structure representing the Government of Pakistan (GoP) – (60%) and Abu Dhabi Petroleum Investment Company (ADPI) through Mubadala Investment Company (based in Emirates of Abu Dhabi – UAE) – (40%). The rating also incorporates PARCO’s strategic importance to economy through operations providing efficient, low-cost, and environment-friendly energy solutions through transportation of petroleum products via integrated Pipelines. Pakistan's consumption of petroleum products experienced a downtrend by a sharp ~26.1% YoY in FY23. This decline is attributed to sluggish industrial activity, reduced local transport fuel consumption, weak auto sales and high product prices. In FY23 consumption of HSD & MS stood at 6.4mln MT and 7.5mln MT of which ~44.4% (for both products) met through the local production. PARCO, being the market leader retains the market share of ~46% in FY23 of the total domestic supply of Petroleum products. In continuation, PARCO witnessed the revenue growth of 21% during FY23, while a significant increase was observed in 1QFY24 where the sales increased by ~32.8%. The Company has low leveraged structure and operations are generally funded by its own resources. Further, the revenue streams also include return on investments in subsidiaries and associate. PARCO is also contributing substantially towards socioeconomic benefits and Foreign Exchange savings for the country. The recently approved “Refining Policy for Upgrade of Existing /Brownfield Refineries 2023 and New /Greenfield Refineries”, provides fiscal incentives in form of tariff protection to refineries considering upgradations. Certain modalities of the Policy are currently under discussion with the Ministry of Energy, Petroleum Division and Government of Pakistan. PARCO has completed a feasibility study for upgradation project and working on underlying agreements (as per the policy) to be signed with OGRA to proceed further. In line with its strategic vision, PARCO has also initiated an integrated refinery-Petrochemical complex of 250-350kbpd project namely the PARCO Coastal Refinery Project. The feasibility study of Petrochemical complex has been completed.
Effective management of upcoming projects, consistency in Government policies and technological improvisation will remain critical for the ratings. Meanwhile, sustained competitive positioning is also imperative.
About
the Entity
PARCO established in 1974, has the most modern refinery in Pakistan having a capacity of 120,000 BPD, over 2000 KM of cross-country pipeline network (including its JV subsidiary Pak-Arab Pipeline Company Limited (PAPCO). PARCO's equity investment in its related business is as follows; a) PAPCO - 62%; b) PPGL- 100%; c) TPPL - 50%, d) PARCO Coastal Refinery Limited - 100%. The company's ten-member Board of Directors (BoD) includes six nominees of the GoP, including the Chairman and the Managing Director (MD), while the remaining four are EAD nominees, one of whom represents OMV, Austria. Mr. Amr Ahmed Chief Executive of PAPCO, also holds the charge of the Managing Director of PARCO and is supported by a team of qualified and experienced professionals.