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Pakistan and Saudi Arabia will sign a memorandum of understanding (MoU) for a $500 million loan during next week’s visit of Prime Minister Imran Khan, as both countries seek to revive ties after passing through a difficult year.
Discussions will also take place on an oil refinery project, but no immediate breakthrough on the $5-7 billion scheme is expected. “Pakistan is going to share a new oil refineray policy with the kingdom,” a PM aide said.
Ahead of the prime minister’s visit, the federal cabinet this week approved the signing of a framework MoU between Pakistan and the Saudi Fund for Development, an official of the Economic Affairs Ministry told The Express Tribune.
Under the MoU, the Saudi Fund for Development will provide long-term concessionary financing of $500 million for the Mohmand dam and hydropower project, Jagran hydropower project, Shounter hydropower project, Jamshoro power generation project, Mansehra water supply project and Abbottabad-Muzaffarabad road project.
Last month, the crown prince had invited the prime minister to undertake a visit to Saudi Arabia, which may now happen on May 7. The visit will lay the ground for the revival of discussions on economic and political issues.
Due to bilateral tensions, Saudi Arabia did not extend the $3.2 billion oil-on-deferred-payment facility and also prematurely withdrew $3 billion worth of cash assistance.
Ties between Riyadh and Islamabad apparently soured because of differences over certain regional issues.
The $3 billion loan was part of the $6.2 billion financial bailout package Saudi Arabia had extended in November 2018 to Pakistan to help avoid default on international obligations.
Rather than taking balance of payments support on geopolitical ground, which is riskier and can be withdrawn any time, Pakistan should offer commercial investment propositions like financing of projects and partnerships in state-owned oil companies, technology parks, banks, hotels, etc, said former Board of Investment chairman Haroon Sharif.
Some of the financing commitments against the six projects have already been made, including for the coal-fired Jamshoro power project. The government was earlier considering winding up the 660MW second unit worth $304 million of the problematic Jamshoro power project.
Pakistan was no more interested in more imported coal-fired power plants, therefore, it downgraded the Jamshoro-II project to a candidate from a committed project on its priority list, said Special Assistant to PM on Petroleum and Power Tabish Gauhar.
“Increasing long-term stakes of Saudi Arabia is critical for sustainability of relationship,” said Sharif, who was heading the BOI when the crown prince visited Pakistan over two years ago.
Two years ago, Commerce Adviser Abdul Razak Dawood had also announced that Saudi Arabia would set up a $5 billion to $7 billion oil refinery with the deadline to complete feasibility and technical studies in 15 to 18 months.
But the project has not moved forward and is facing delays with uncertainty about its fate. Pakistan would welcome Saudi Aramco investment in setting up a 250,000-barrel-per-day deep-conversion oil refinery, said Gauhar while talking to The Express Tribune.
He said that the Petroleum Division had cleared a draft oil refinery policy, which would be shared with Saudi Arabia during the prime minister’s visit. A draft summary has already been circulated among relevant ministries for their input. Saudi Arabia could avail 20-year income tax holiday on investment in the oil refinery under the new policy, said Gauhar.
“The government will not give guarantees on the internal rate of return on investment, product offtake and pricing, and it will be a commercial decision by Saudi Arabia to invest in the oil refinery,” he added.
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Sharif said that in order to fast-track the oil refinery and petrochemical plant project, there was a desire to set up a corporate sector-like team not housed in the ministry, but the idea could not pick up momentum due to the usual bureaucratic hurdles.
The existing five oil refineries would also be given protection under the new policy, said Gauhar, who underscored the need for providing environment-friendly products to the consumers.
Pakistan and Saudi Arabia may also sign an MoU on green partnership during the premier’s visit.
The existing oil refineries would be asked to upgrade their products to Euro-V standards under a new time frame, he added. About 40% of the upgrade cost will be borne by the consumers and the remaining will be borne by the refineries. Unlike past, this time the refineries would be given money only when they achieved financial close and the collection would be deposited in a separate account in the bank till that time, said Gauhar.
He said that all over the world refineries were making losses due to depleting demand for fossil fuels and they needed some kind of support to survive.