The conventional norms of reasoning often fall short of explaining the shifts in today’s world, especially in Pakistan. The visible spike in investor confidence at this point is puzzling, considering the economic challenges and terrorist threats the country is facing. Moreover, the fact that the current government’s term is ending this week adds further complexity to the situation.

The investor’s sentiments turned bullish over the past few weeks, expressed in the booming capital market. Pakistan benchmark stock market (PSX) index rose vertically. It was at 41,000 level five weeks back. It crossed the 49,000 mark last week, gaining by 20 per cent.

Marketers, when approached for input, counted several factors that contributed to positive market sentiments. After the International Monetary Fund deal, they believed the $10 billion Saudi refinery deal was the key driver that boosted business confidence.

“The fact that the said contract was instantly marked and analysed globally is a testament to the potential it holds for Pakistan and its partners. A project of this scale in the energy sector has consequences that sometimes extend beyond economics,” commented an analyst hinting at the changing contours of energy politics post the Saudi Iran détente.

‘The fact that the $10bn contract was instantly analysed globally is a testament to the potential it holds, and its benefits that can extend beyond economics’

Commenting on the Saudi refinery project Mohammad Sohail, CEO of Topline Securities, said: “We have been hearing of this refinery for the last few years. Now the process seems to be gaining momentum with local participation. This, however, is a long-term project, and the actual investment will depend on how aggressively both governments stick to their commitments.”

Pakistan inked the $10bn joint venture agreement with the Kingdom of Saudi Arabia to establish an integrated greenfield oil refinery, with a processing capacity of 300,000 barrels per day (20 million tons per annum) at Gwadar last month, about three years after the project was initially conceived in 2019.

Four state-owned majors, Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO) and Government Holding Private Limited (GHPL), will team up with Saudi giant Aramco for a refining project that exceeds the current total collective capacity of oil processing in Pakistan.

The current annual demand in Pakistan for refined oil is projected at around 33 million tons against the capacity of 20m tons. The actual production, however, stands at 11m tons, one-third of the need and almost half of the capacity. The limited refining capacity in the country is further undermined owing to the non-upgradation of refineries, besides other constraints. In the last few decades, Pakistan has set up only two refineries.

Complete details of the said multi-billion deal have yet to surface, but whatever little has so far been shared holds great promise, according to experts.

“The benefits will flow not just for the parties directly involved, but its dividends may extend to oil suppliers including Russia and Iran and likely providers of engineering and construction services in China,” said an analyst. There were reports of Pakistan already engaging with the Chinese for engineering, procurement and construction (ECP) contracts.

According to the information trickling, the state-owned entities of Pakistan will contribute 70pc, while Aramco will inject the initial 30pc equity into the project.

Pakistan reportedly offered a generous incentive package to Aramco, including a flat 7.5pc deemed duty on petrol and diesel for 25 years, tax holiday for 20 years, and complete exemption from all levies (custom duty, surcharges, withholding tax, general sales tax, etc.) on import of equipment or material and any approval/clearance from regulatory bodies including the Engineering Development Board.

“A petrochemical complex at Gwadar, hardly 90 kilometres from the Iran border, will be great. It will provide a chance for closer trade ties with the oil-rich neighbour. It can also help capitalise on the access to cheaper Russian crude,” Dr Manzoor Ahmed, a reputed trade expert, commented over the phone from Lahore.

He made a case for not limiting incentives to Saudi refineries. “To optimise returns, it would help if the incentive cover extends countrywide for refineries. It would nudge current refineries to upgrade and attract new investment.”

According to relevant sources in Islamabad, the adoption of the Oil refining policy 2023 and the formation of the Special Investment Facilitation Council, a hybrid civil-military forum with a seat reserved for the army chief in its apex committee, provided comfort to foreign investors crucial for the realisation of the deal at this juncture.

“Anyone interested in Pakistan is aware of the relative power of the military establishment. Given a chance, they would prefer to settle affairs with the person at the top of the pile. My own experience of dealing with political leadership has not been good. I still think business is not a martial activity and must be in the civilian domain,” a former executive of a project compromised by a policy reversal said privately. He opposed SIFC, which he thought undermined the core idea of civilian supremacy in a democratic set-up.

The top tier of the current energy establishment was contacted to share details of the Saudi refinery deal, but their response did not reach till the filing of the report. Many business leaders excused themselves as they said they know little beyond news reports.

“My politician friends are in election mode now. It’s futile to bother them with anything business at this point. Without deeper insight, it’s lame to comment,” noted a tycoon explaining his reluctance to offer his opinion.

Published in Dawn, The Business and Finance Weekly, August 7th, 2023