Four Pakistani state-owned petroleum companies have signed a memorandum of understanding (MoU) with Saudi oil giant, Aramco, for the highly anticipated oil refinery complex in Gwadar–the first in a decade, and largest in the country. This project signals a development in the strategic partnership between Saudi Arabia and Pakistan, all the while opening up new opportunities for the oil industry and public alike. The hope is that this refinery will alleviate the burden of imports, encourage exports, cater to local demand and create employment opportunities for the masses.
This agreement is garnering a lot of attention and rightfully so since it is bringing in $10 billion of investment from our friendly ally. Foreign investment is further expected to increase due to equity participation, for which a provision has been made in the initiative. This could be a great avenue through which the state gets revenue that can further be allocated towards the oil industry so that it can finally cater to the needs of the national market.
The refinery is also expected to have a production capacity of 300,000 barrels per day. This would help bridge the gap in the market as most refineries have limited outputs, despite having high production capacities themselves as well. On top of all this, it will open up more room for exports. Pakistan has already been exporting furnace oil for which local demand has fallen dramatically ever since the energy mix of the power sector changed. The added production through this new refinery will not only increase such exports, but reduce costs of refined fuel which can be sourced locally, rather than imported.
The fact that the refinery is part of an integrated complex means that there are plenty of other facilities that will be constructed alongside it; a petrochemical complex, marine infrastructure, storage units, and pipelines. All in all, this seems to be a beneficial investment not only for Pakistan but for Saudi Arabia as well since it has been granted certain fiscal incentives for this project. At the same time, however, we still lack a fair and updated policy framework for all refineries, especially those that are pre-existing, so that they can expand and operate to their full capacity. This will be integral for amplifying all the benefits we are already experiencing through refining oil domestically.