Pakistan Refinery Loses Rs. 5.82 billion Due to Decline in Demand of Furnace Oil

Pakistan Refinery Limited is a hydro skimming refinery designed to process imported and local crude oil, it is located on the coastal belt of Karachi.

The company announced its financial results for the year ended June 30th, 2019. During the year, the company incurred a loss of Rs. 5.82 billion. It had booked a profit of Rs. 503 million in the same period last year.

It operates under the Import Parity Pricing regime and it is significantly dependent on the margin between the crude oil refined product prices in the international market. In the current year, these margins were very low as compared to the last year. However, it reported a revenue of Rs. 115.74 billion from contracts with customers, which was up by 25.50% as compared to Rs.92 billion in the corresponding previous period.

The reasons for negative margins included an unprecedented trend in prices of motor gasoline (petrol) that traded in the international market below the crude oil prices.

Also, the decline in demand of furnace oil in the country led to inventory build-up and pressurized refinery operations. Therefore, to ensure continuous operations and to attract customers, the prices of furnace oil were reduced, which had a negative impact on the company’s profitability.

The cost of sales of the company was reported at Rs. 118 billion as compared to Rs. 9118 billion in the previous year. This resulted in a gross loss of Rs. 3.17 billion. It has reported a gross profit of Rs. 1.04 billion in the corresponding period.

The finance cost of the company went up by a staggering 143.65% to Rs. 1.44 billion as compared to Rs. 591 million in the same period last year. The company reported a loss per share of Rs. 18.92 as compared to earnings per share of Rs. 1.64 in the previous period.

Less Demand for Furnace Oil

The company in its report stated that the decline in demand for the furnace oil in the country led to inventory build-up and pressurized refinery operations. To continue the operations and to attract the customers, the prices of the furnace oil were reduced, which also harmed the company’s profitability

Deadline Fiasco

Under the policy framework for the up gradation and expansion of refinery projects issued by the Ministry of Energy on March 27, 2013, refineries were required to install Diesel Hydro-desulphurization Unit (DHDS) by June 30, 2017, to produce Euro-II compliant High-Speed Diesel (HSD).

Moreover, it failed to meet the deadline of setting up the Diesel Hydro-desulphurization Unit (DHDS) unit and hence was subjected to downward adjustments of its HSD pricing, causing losses of Rs. 1.15 billion, which are a part of the losses this year.

PRL’s script at the bourse was closed at Rs. 12.22, down by Rs. 0.29 with a turnover of 111,000 shares on Wednesday.