UAE to build oil refinery on Pakistan coast

The United Arab Emirates (UAE) has decided to go ahead with the construction of a $5 billion oil refinery in Pakistan's southwestern Balochistan province, Pakistani officials said Sunday.

The refinery with an output of 250,000 barrels per day was postponed in January, due to the global recession and a row over management issues with Islamabad.

"The major contentious issues have been resolved and the project will soon be kicked off," a senior official of Pakistan's Ministry of Petroleum and Natural Resources said.

The Khalifa Coastal Refinery project is a joint venture between the Abu Dhabi state-owned International Petroleum Investment Company (IPIC) and the Pak-Arab Refinery Limited (PARCO), which is jointly owned by Pakistan and Abu Dhabi.

PARCO will hold 24 percent of shares and IPIC the other 76 percent in the refinery to be built in the coastal area of Hub. The Pakistani government will own 60 percent of PARCO's share.

According to the official, who spoke on condition of anonymity, PARCO approved initial funding of $500 million as part of its contribution to start the project.

"Out of this total amount, the PARCO board of directors approved an immediate release of $13 million to start subcontracting work related to the implementation of the KCR project," he added.

Mehmood Saleem, a senior official in the Ministry of Petroleum and Natural Resources, confirmed that "the project will hopefully be launched" next month, since PARCO had approved the initial funds.

"Now the IPIC and government of Pakistan will finalise the modalities to kick off the project next month," Saleem told DPA.

The proposed refinery will produce energy fuels out of Arabian and Iranian crude oil, and its final cost is expected to go beyond $5 billion partly due to the "foreign exchange component," as well as the project expansion plans.

The Pakistani rupee stood at around 60 to the dollar in 2007, when the agreement was first signed, compared to 83 rupees currently.

Ahsanullah Khan, Pakistan's former ambassador to Abu Dhabi, said in mid-2008 that the cost estimates of $5 billion for the refinery project would "increase substantially".

It includes a 250-megawatt power generation plant, mini port terminal, an electric power grid station, road network and other necessary infrastructure, he said.

With the completion of the refinery, Pakistan's capacity would be doubled from the current 248,506 barrels per day.

Some oil products refined at the new plant would be exported to Pakistan's neighbouring countries, officials said.

Last updated on Nov 15^th, 2009 at 18:19 pm IST--DPA