ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has awarded a licence to Khyber Refinery (Pvt) Ltd to set up a new refinery in Khushalgarh, Khyber Pakhtunkhwa for five years.

Ogra officials said Khyber Refinery — a new name in the market — had applied for the licence on July 11. The regulator granted the licence “to construct a new refinery of 20,000 barrels per day for five years”.

This is the second licence for the construction of a refinery in Khyber Pakhtunkhwa in the past few days.

Earlier, Ogra had issued a licence to Falcon Group to set up a 100,000 barrels per day of refinery at Dera Ismail Khan and is said to be targeting imported crude.

The Frontier Works Organisation (FWO) was already at an advanced stage to be issued a licence to process crude oil produced from Nashpa Oilfield at Kohat while two more companies from Russia and China were in negotiations with the KP government for two smaller refineries to achieve a total production target of 200,000 barrels per day in about three years.

Khyber Refinery — led by a local businessman Zafar Sha­ikh — was reportedly ahead of all others in the race including FWO as it had completed the front-end engineering design (FEED) of the refinery.

Officials at the Petroleum Division and industry experts said these refineries were not feasible commercially for the fact that total oil production in the province was no more than 55,000 barrels per day which was mostly being supplied to Attock Refinery, near Rawalpindi.

Mainly because of crude constraints, the government of Khyber Pakhtunkhwa and state run Pakistan State Oil (PSO) have been unable to proceed with their proposed joint venture for a local refinery of 40,000 barrel per day capacity.

A Petroleum Division official said local refineries are required to purchase crude from the field at international rates and could not be given cheaper crude. Also, the refineries have to secure international certification for technology that attracts fee while a small refinery with 20,000 processing capacity could hardly produce any marketable 90 or 92RON petrol, making it unviable for a short period like five years.

Member Oil Ogra Dr Abdullah Malik did not respond to calls to comment while the Ogra spokesman was reportedly on a visit abroad. An Ogra official, however, said irrespective of the feasibility or not, the regulator was required to issue a licence when any applicant completes documentation.

A refinery expert said smaller refineries may not be viable as the government has only recently announced an incentive package for refineries having minimum capacity of 100,000 barrels per day for deep conversion refining with 20 year tax holiday.

The licences are being issued by Ogra under rule 5 (2) of the Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules, 2016.

Investors are required to secure a few departmental clearances before they are allowed to start commercial operations.

These include NoCs from Ministry of Defence, Environmental Protection Agency and other federal or provincial agencies. The licencees are also required to submit due diligence certificate from scheduled bank or financial institution, within one year of issuance of this licence.

The licencee would also be responsible to arrange crude oil at its own without any guarantee or obligation from the government or the regulator. The proposed refinery shall be a brand new project (semi conversion) and comply with the technical standards for that category, notified by Ogra and all other applicable safety standards in setting up the proposed refinery project.

The company shall furnish a quarterly progress report on construction of the refinery on regular basis and a third party completion report.

In case of failure to complete the infrastructure within the stipulated period of the licence (without any valid reason), the regulator can decline the extension of the licence or, depending on the nature of non-compliance impose penalties.

Published in Dawn, August 8th, 2018