China backs Karachi

China backs Karachi refinery
By Syed Fazl-e-Haider

KARACHI – China is to invest US$535 million to restart a stalled refinery project in Pakistan, which foreign investors and contractors abandoned amid the political turmoil in the country following the assassination of former prime minister Benazir Bhutto in December 2007.

The Indus Refinery Ltd (IRL) was a joint venture project between Middle East-based investors with an 86.7% shareholding and local sponsors with 13.3%, proposed in 2004.

“The Chinese have been really helpful,” The News quoted IRL chairman Sohail Shamsi as saying. “I thought no one would come

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The Chinese will replace the Middle East-based investors, after IRL signed a contract with the government in Beijing for the civil works for the project to be restarted, possibly as early as next month.

The China International Project Investment Management Center this month signed an agreement with IRL to establish the refinery, which will be the country’s largest in the private sector. China National Chemical Engineering Group Corp is expected to be the contractor starting the physical work on the project. As a result of using the latest production technologies and through economies of scale, it will have a competitive edge over Pakistan’s

existing refineries.

IRL will be the sixth refinery in Pakistan, after National Refinery, Pakistan Refinery, Attock Refinery, Pak-Arab Refinery and Byco Petroleum Pakistan Ltd (BPPL). The country has an installed refining capacity of 12.82 million tonnes a year, but the country’s five refineries together produced only 8.11 million tonnes in the fiscal year ended June 2010, an 8% decline over the previous year, against local demand of 20.3 million tonnes of petroleum products.

Registered as a public company in 2004, IRL had later engaged world-class engineering firm SNC Lavalin of Canada to act as project manager, Ventech Engineers International as process engineer, and advisory firms Jacobs Consultancy and Vitol. The civil work on the project was started by Descon Engineering in 2007.

However, the foreigners working on the project in Karachi packed up their bags and left the country in the aftermath of Bhutto’s assassination during her election campaign in December 2007. The Chinese will now be the lead investors and contractors.

Despite Pakistan’s worsening internal security, the Chinese government and Chinese companies have shown themselves keen to invest in Pakistan’s energy sector, which desperately needs foreign investment. Most recently, oil exploration company, Zhenhua, has shown interest in increasing its interest in Pakistan Petroleum Ltd (PPL), the nation’s top oil producer. The Chinese company already partners PPL in some joint ventures.

Last week, Zhenhua vice president Heyang Zuxi called on Federal Minister for Petroleum and Natural Resources Syed Naveed Qamar in Islamabad and told him about the company’s plan to invest in PPL, whose output has been hit by the recent floods that have swept Pakistan, inundating some production blocs and cutting PPL production by about 7 million cubic feet.

China was also earlier interested in constructing an oil refinery in Gwadar, in southern Balochistan province. Petroleum products refined there were to be transported by pipeline through Pakistan to Kashghar in China. The Gwadar project, however, was deleted in the last financial year from the financial development program agreed between the two countries, reportedly in reaction to the global economic recession.

Unlike the Gwadar project, they IRL refinery output will be predominantly for domestic market. “They [the Chinese] are not investing in Indus Refinery to export products from here to China, but petrol can be exported,” IRL chairman Shamsi told The News.

United Arab Emirates’ state-run International Petroleum Investment Co (IPIC) has also halted work on the $5 billion Khalifa oil refinery project in coastal Balochistan. The project was suspended last January due to technical and political reasons. IPIC holds a 74% stake, and Pakistan-Arab Refinery Co the remainder.

About 50% of Pakistan’s energy needs are met by indigenous gas production, 29% by domestic and imported oil, and 11% by hydro-electricity.

Syed Fazl-e-Haider ( is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan (2004). He can be contacted at

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