Pakistan Refinery Limited ("PRL") is a Public Limited Company, incorporated in 1960. It is listed on the Pakistan Stock Exchange.

The plant came into operation, in October 1959. The designed capacity of the refinery was to process one million tons of crude oil annually. Additional capacity was added, subsequently in October 1962. PRL, since inception, has been one of the principal producers and suppliers of petroleum products in the market.

PRL operates on hydro-skimming technology, and its capacity is to refine 50,000 barrels of crude oil per day. Major products of the company comprise: LPG, Motor Gasoline, Kerosene, Jet Fuels (JP-1 & JP-8), HSD, Furnace Oil, and Naphtha. The major customers of the refinery include all the major oil marketing companies operating in the country. PRL produces around 40 to 45% of Furnace Oil (FO), having very high Sulphur content, which makes it undesirable. Another flaw is the adverse carbon emission of the refinery Therefore, PRL is committed to shift to Deep-Conversion Technology, which will allow it to produce 100,000 barrels of oil per day with reduced FO around 20%. For the mentioned reason, PRL needs government incentives and around $1.5bln in capital expenditure to upgrade the refinery.

PRL’s pattern of shareholding is illustrated as the majority of shareholding is held by Pakistan State Oil (PSO), i.e.~64% Other Funds. major shareholders comprise financial institutions (~7%) and the general public (~24%).

The business has been governed and administered by entities which have a distinguished name in the oil sector. Therefore, the stability factor is considered strong. This longstanding presence and deep understanding of the industry reflect the Group’s strong commitment, industry expertise, and strategic acumen in the energy domain.

PRL's sponsors have strong business skills, which have helped the company to achieve sustainable success over a considerable period of time. Sponsors, particularly now with PSO on board, have industry-specific working knowledge and strategic thinking capability.

The company's sponsors have the ability and willingness to support the entity on a continuing basis, and in times of crisis. The sovereign support of the government in the shape of PSO, has further enhanced this notion. During the period, the Board of Directors of the Company approved a loan facility of PKR 3.15 billion from PSO to finance the Front-End Engineering Design (FEED) study for the Refinery Expansion & Upgrade Project (“REUP”) reflecting the strong shareholders support.

PRL has an eleven-member board, including the MD & CEO. The board comprises of six independent directors, four non-executive directors, and one executive member.

The Board of Directors at PRL comprises a distinguished group of seasoned professionals who bring diverse end valuabe experience from their respective fields. Their collective expertise enables effective strategic oversight and strong governance. Mr. Tariq Kirmani has more than 51 years of multifaceted experience in the corporate sector, both domestic and international. Currently, he is serving as the Chairman of PRL and Gas & Oil Pakistan Ltd. (GO). He is also serving as a Director on the Boards of Professional Education Foundation (PEF), IBA Selection Board and National Academy of Performing Arts (NAPA). The current composition of the Board adequately meets the requirements of best practices in Corporate Governance

To strengthen governance and ensure effective oversight, the Board has established three key committees: i) Board Audit Committee ii) Board Human Resource and Remuneration Committee and iii) Board Project Steering Committee. The TORs of all the committees are formally dened. A strong control environment is maintained.

PRL's auditor, KPMG Taseer Hadi & Co., has expressed an unqualified opinion on financial statements at the end of FY24. Because of its listing status, the financial transparency of the company is considered strong, as it has to comply with the disclosure requirements of the regulators.

PRL's organizational architecture encompasses a well-built departmental structure comprising established reporting lines. The departments reporting directly to the MD comprise; a) Operations, b) Engineering, c) Refinery Upgrade Project, 4) Finance, 5) Information Technology, 6) Technical and Inspection, 7) Commercial, Contracts and Procurement, 8) Human Resources, 9) HSEQ, 10) Legal & the Company Secretary report to the MD, indirectly.

Each division within the Company is led by the Senior Manager or General Manager who has been associated with the organization for the significant period. Their long-standing affiliation provides them with deep expertise end a comprehensive understanding of the Company's operations, enabling effective management and continuity.

Mr. Zahid Mir has been working for PRL as Managing Director & CEO since August 1, 2019. He is a Petroleum Engineer, and an MBA. Mr. Mir has over 36 years of diverse technical and management experience working for both public sector and multinational companies in Pakistan and United Kingdom. He also has significant experience of both onshore and offshore operations, having been involved, at a senior level, in all stages of upstream and mid-stream operations. He has extensive experience in negotiating commercial and fiscal agreements, developing strategy, project development and execution, mergers and acquisitions and dealing with the Government regulators. He has previously worked for Shell, Kufpec, Premier Oil and OGDCL. Before joining PRL, his last appointment was as MD/CEO of OGDCL. Mr. Mir is also a Director of Petroleum Institute of Pakistan (PIP) and has served as Chairman, Oil Companies Advisory Council (OCAC) in 2021

Historically, PRL's effective management has played a major role in empowering the organization through its progressive results. Management's effective decision-making has led to processes becoming more systematic. The robustness of control systems is considered a reection of strong management.

PRL has implemented SAP ERP, since the year 2000. The SAP software is licensed and undergoes regular upgradation . The modules implemented at PRL comprise; Finance, Material Management, HR and Plant Maintenance. PRL's IT infrastructure effectively manages all business operations of the company.

The Company is fully committed to relabiity and accuracy of financial statements and transparency of transactions in accordance with established procedures and practices. The scope of internal auditing within the Company is clearly defined which broad is involves review and evaluation of its' internal control systems. PRL conducts periodic audits and risk esseasment of its activities, processes end products for setting and reviewing its objectives and targets to provide assurance, to improve HSEQ standards and Loss control. The existence of the Isomerization Unit has resulted in a production increase of Motor Gasoline (MOGAS), a high margin product. The unit is responsible to convert Naphtha into MOGAS.

Pakistans combined refining capacity stands at 19.8mln metric tons per annum (MTPA). During FY24, the total consumption of refined petroleum products-including Motor Spirit (MS), High-Speed Diesel (HSD), Kerosene, Jet Fuel,and Furnace Oil (FO)- was approximately 16.317mln MTs, compared to 16.853mln MTs in FY23, reflecting a 3% year-on-year decline.This reduction was primarily driven by decreased demand, resulting from rising prices of MS and HSD,as well as a significant drop in the use of FO for power generation. Local refineries supplied 10.081mln MTs of petroleum products in FY24 (FY23:8.971mln MT) meeting around 62% of the country's total demand.The remaining requirement was fulfilled through imports. However,the availabiity of HSD from unregulated sources in the local market negatively affected refinery sales volumes,leading to storage constraints and reduced capacity utilization. In FY25,international crude oil prices remained volatile rising from USO 73 per barrel in December 2024 to USO 80 in January 2025, before falling to USO 72 in March and continuing downward into April 2025.This volatility significantly impacted crack spreads, resulting in a notable reduction in gross profit margins for the period. Following the close of the reporting period, escalating global tariff-driven economic tensions triggered e sharp decline in crude oil prices,causing substantial inventory losses across the refining sector. Domestic consumption of HSD and PMG remained subdued during the quarter,prompting OMCs to scale back product up liftment amid falling oil prices.During the first nine months of FY25, total POL product consumption stood at 11.Bmln MTs, slightly higher than the 11.4mln MTs recorded in the same period of the previous year. Furnace oil consumption, however, continued its declining trend in FY25. On a positive note,the sector benefited from reduced policy rates, which contributed to a decrease in financing costs. Going forward, refineries undertaking upgradation end expansion projects under the Refinery Policy ere expected to bring significant benefits to the sector by enabling the production of Euro V-compllent petroleum products, improving the overall product slate, and reducing dependence on imports.

Pakistan’s total refining capacity stands at ~19.8mln MTs per annum (FY24), almost equal to the country’s POL demand. However, capacity utilization levels remain low on account of the sector’s necessity to operate at an optimum level. Demand for Furnace Oil has declined due to the government’s policy of reducing reliance on furnace oil for electricity generation.

PRL's turnover, slightly increased as compared to the same period last year. Turnover for 9MFY25 stood at PKR 235,961mln, up from PKR 231,644mln in 9MFY24. This increase was primarily due to an increase in sales volume of 17%. The RC inquired about the petroleum products for the Company, showing performance in the fuel divisions. It was discussed that in 9MFY25, the revenue mix was led by High-Speed Diesel (HSD), contributing ~53%, followed by Motor Spirit (~18%) and Furnace oil (~12%), with the remaining ~17% comprising other petroleum products.

Gross margins of the Company declined significantly to 0.1% in 9MFY25, compared to 5.6% in the same period last year (9MFY24), primarily due to i) elevated operating costs driven by an increase in raw material prices, and ii) higher inventory losses. Operating margins also deteriorated, standing at -0.6% in 9MFY25, largely attributable to a rise in operating expenses during the review period. Consequently, net margins followed a similar downward trajectory, recorded at -1.9%, resulting in a net loss of PKR 4.5 billion.

The refinery sector has been going through an existential crisis as a result of the government's demand for environment-friendly fuel. The issue of low FO offtake has been compounded by the introduction of the IMO 2020, which necessitates the use of low-sulfur FO by the marine sector. Due to the substantial investment needed for the required upgrades to the refineries, the developments in this regard have reached an impasse. A slump in demand for petroleum products has put the industry players under further pressure. Government assistance is imperative for the sustenance of the sector.

PRL’s working capital requirement emanates from the import of raw materials and remains a function of fluctuating crude oil prices in international markets. During the period, there has been a decline in sale volumes due to lower consumption in the economy, followed by infiltration of smuggled products. As a result, Gross Working Capital Days stood at 45 days. External factors such as oil price volatility, higher freight and LC confirmation charges, and ongoing economic uncertainty continued to strain the Company’s operations and financial performance during the year. Despite a reduction in benchmark interest rates, the expected relief was offset by persistent pressures, including thin product margins, rising utility costs, and foreign exchange and inventory losses on crude oil imports. These factors drove a higher need for working capital financing, resulting in increased reliance on short-term borrowings, which stood at PKR 42,130mln in 9MFY25. The elevated borrowing levels led to higher financing costs, further weighing on profitability.

PRL’s cash flow generation ability remains a function of its profitability and working capital requirements. Due to the minimal gross profit translating into net losses, the Company reported negative Free Cash Flow from Operations (FCFO) of (PKR 4,139mln) in 9MFY25. The situation was exacerbated by elevated borrowing costs driven by increased short-term financing utilization. These factors adversely affected the Company’s overall financial performance and profitability. Consequently, key financial coverage metrics weakened, with coverage ratios turning negative to (1.5x) in 9MFY25, indicating a heightened level of financial stress. Going forward, any accumulation of debt for the upcoming expansion and upgradation project may impact the coverages.

As of March 2025, the Company is facing significant financial strain,with Leverage rising to 64% (including FEED financing of 12bln), reflecting a heavy reliance on debt financing.Accumulated losses of reached to PKR 2,909mln have effected the equity, standing at PKR 23bln. Approximately 78% of total borrowings comprise short-term debt,while a long-term loan of PKR 9,111mln further increased the leveraging ratio. The elevated debt levels,combined with ongoing operational losses, are placing considerable stress on the Company's capital structure. With the planned execution of major upgradation projects, the need for further long-term funding is anticipated,which may keep leverage elevated and further strain the Company's financial profile.