Mohammad Wasi Khan is Country Business Head of Byco Group which owns and operates two oil refineries and an OMC in Pakistan. In addition to that he is also CEO Byco Asia, based in Dubai.
In the past he has served as CEO and other top senior management positions in Byco Petroleum Pakistan Limited and National Refinery Limited. BR research recently sat down with Wasi and discussed issues surrounding refinery and OMC industries. Following are edited excerpts from the conversation.
BR Research: Tell us about Byco's journey so far
Wasi Khan: We are a unique company as we have oil marketing and are youngest in oil refining though now it's been over 10 years that we had commissioned our first refinery. Initially after being issued a marketing license, we were the 6th company who initiated oil marketing in Pakistan.
Byco initiated its oil marketing business when it launched its first retail station in 2007. In 2008, we achieved 35,000 barrels per day capacity now after the addition of another refinery we have an installed capacity of 155,000 barrels per day, but the company currently is utilising its capacity according to the product demand placed by the oil marketing companies on us. Our capacity utilisation is dependent upon how the imports are made to be substituted by our product by the OMCs.
BRR: Can you explain how the chain works from import to refining?
WK: Our recent past has been very happening. We have installed the largest refinery of the country, and have also installed an oil jetty which is a liquid oil port and a 3rd hydrocarbon entry point of the country. The facility is 12 km inside the shore unlike other fixed ports, this operates in a manner where oil tankers, which are larger size ships, are moored and crude oil is discharged through a sub sea pipeline into the refinery tank farm. This is how we receive refinery crude oil which is processed in our two refinery plants.
The final product is primarily dispatched through tank lorries. In addition to this, we also have a parallel facility for shipping this product through tankers to Port Qasim where the same pipeline can be used. In the same manner, SPM system can be used for the import of petroleum products. We are looking into the process of certain regulatory requirements which we are fulfilling, once done; we will commercially start moving diesel out to port Qasim through our SPM.
Besides that, we have actively enhanced our retail outlets, presently we have over 255 outlets all across the country. Over these past years, we have managed to install a fully fledged oil refinery which is completely operational, expanded our OMC business, and have also set-up an oil jetty which is connected with our refinery. Apart from this, we have also utilised full capacity of our terminal located at our refinery from where we have been importing jet fuel, exporting it to Afghanistan. In short these were some major activities throughout couple of years.
BRR: From the refinery point of view, how much crude oil you import and how much is locally produced?
WK: It depends upon what capacity we are running. At the moment we are getting 3,500 barrels per day of local crude oil which is allocated to us by OGDC, rest is imported through long term contracts from oil producers and oil majors or spot purchases from oil majors and large oil traders.
BRR: What is the break-up of your product mix, in term of sales?
WK: We have a hydro skimming configuration. On top of it, we have installed Isomerization plant through which we can upgrade more naphtha and therefore make more gasoline. When we run a refinery it produces a range of products which is to be sold in the market. Incidentally, naphtha is exported out due to lack of conversion capacity to either gasoline or to petrochemicals. Our Isomerization will largely reduce Naphtha production and will enhance value addition.
BRR: What is the latest on EURO II up gradation of whole refinery set up? Government has time and again claimed that they have given deem duty but the refineries were not upgraded.
WK: When we say Euro II, we have to see which product is at nearest stage of implementing it closest to Euro II. As far as motor gasoline is concerned, all other refineries including Byco are on the way to reach this target mostly within this year through installation of Isomerization plants. Byco has incidentally done this earlier as we already had an Isomerization plant in our original configuration. As for diesel, refineries are in various stages of implementing their plans to install hydro desulphurization plants.
BRR: We have been listening this from quite some time that the companies are into the process of upgrading themselves but when financial statements come, there are some losses shown and then it never happens. So people criticise the refineries. What is your take on this?
WK: You have to see the issue in overall perspective, the entire industry is regulated and market price is controlled, even demand and supply is also monitored. On the other hand the up gradation project are very cost intensive. One single project of hydro desulphurization costs over $100 millions whereas it would not increase the output of diesel but would only improve its environmental value which is also very important.
However, the economic return does not cover the investment costs unless it is incentivized by the government in some manner for encouraging investment.
BRR: What is your overall view on pricing mechanism? Are you satisfied? Is it over regulated or needs to be regulated?
WK: The problem is they haven't chosen any of the option completely, either you fully regulate it or completely deregulate it. They have deregulated fuel oil but at certain stages it is considered as regulated. As far as other products are concerned, like motor gasoline and diesel, these are not deregulated, these are assumed to be partially deregulated but the refineries are following the pricing of import. It will be better that we should choose one option entirety, either regulate fully or deregulate completely.
Import should be allowed only when refineries declare inability to produce up to demand. Local refineries won't be able to compete supply from other countries where they work on economy of scale and don't have other costs of doing business which we have to take care in our respective operations and businesses.
BRR: What are Byco's plans in the near and long term future?
WK: Byco is now in the phase of consolidating to whatever we have added in the recent past. We have the project of petrochemical plant which is almost there as completely relocated on our lands and ready for construction. This is a one of its kind project in the country based on paraxylene being the prime product, it will be first base chemicals plant of the country. It will require a year and a half to complete its construction. The areas of active movement currently are certain plants up gradation and terminals and storages so that our product could be stored and sold all across the country.