The Pakistan Credit Rating Agency Limited
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Bazah Tul Qamar

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PACRA maintains Entity Ratings of Pak-Arab Refinery Limited

Rating Type Entity
(10-Dec-21 )
(10-Dec-20 )
Action Maintain Maintain
Long Term AAA AAA
Short Term A1+ A1+
Outlook Stable Stable
Rating Watch - -

The ratings incorporate PARCO's unique ownership structure - by the Government of Pakistan (GoP) (60%) and the Emirate of Abu Dhabi (EAD) (40%) along with its strategic importance to economy through operations extended to, transportation of petroleum products through integrated Pipelines, Refining, and Marketing, providing efficient, low-cost, and environment-friendly energy solutions. PARCO is also contributing substantially towards socioeconomic benefits and Foreign Exchange savings; its low business risk emanates from its leading market position, strong demand of its products and its advanced Refinery Complex technology. In addition to spike in crude oil prices in International Market, the Country's oil sales in the first quarter of the ongoing fiscal year (1QFY22) posted growth on the back of rising trend in sales of furnace oil (FO), high speed diesel (HSD), MOGAS. In line with industry trend, the Company's topline also increased by 63.4% in 1QFY22. Further, the revenue stream is supported by the return on investments in subsidiaries and associates. Also, Company's investments in dollar-based TDR cover its financial risk profile to a maximum level and also acts as an implied hedge against exchange rate fluctuations. In 1QFY22, the Company earned a net profit after tax of PKR 9.1 billion. PARCO has initiated the development of PARCO Coastal Refinery Limited (PCRL) project, a greenfield 250-350 kbpd integrated refinery-petrochemical project, to be located in the coastal area near Karachi. PARCO also intends to develop an Oil Import Terminal to meet the growing domestic requirements for refined products. Strong capital structure and sizable equity has, historically, enabled the company to absorb hefty capital expenditures.
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
Established in 1974, Pak-Arab Refinery Ltd (PARCO) is a 60:40 joint venture between the Government of Pakistan and Emirates of Abu Dhabi (EAD) through its investment arm, Abu Dhabi Petroleum Investments LLC (ADPI). PARCO started out as a pipeline company. With capacity enhancements and network expansion, the network consists of ~2000 km long cross-country oil and finished product pipeline, by the name of Pak Arab Pipeline Company Limited (PAPCO) – a joint venture between PARCO, PSO, and Shell. PARCO also has major investments in marketing operations which include: Total PARCO Pakistan Limited - a joint venture in a rapidly expanding retail fuel/lubricants network and PARCO Pearl Gas (Private) Limited – a subsidiary; one of the largest LPG marketing/distribution companies. PARCO is also engaged in the direct supply of oil products to industrial customers and the Armed Forces through the Pearl brand. PARCO's equity investment in its related business is as follows; a) PAPCO - 62%; b) PARCO Pearl Gas (Private) Limited- 100%; c) Total PARCO Pakistan Limited - 50%, and 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 is the OMV representative. The Managing Director, Mr. Shahid Mahmood Khan, has been associated with the Company for over 11 years and is supported by a team of qualified and experienced professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.