Economy: Saudi investment leads to PSX into confidence
In today’s world, especially in Pakistan, conventional norms of reasoning are often inadequate to explain the changes. The apparent spike in investor confidence at this point is puzzling, considering the country’s economic challenges and terrorist threats. Further complicating matters is the fact that the current government’s term ends this week.
In the past few weeks, investor sentiment has turned bullish, as reflected in the booming capital market. The Pakistan benchmark stock market index (PSX) rose vertically. Five weeks ago, it was at a level of 41,000. The stock gained 20 percent last week, crossing the 49,000 mark.
Asked for input, marketers cited several factors contributing to positive market sentiment. As a result of the International Monetary Fund’s deal, they believed the $10 billion Saudi refinery deal was the key to boosting business confidence.
It is testament to Pakistan and its partners’ potential that the said contract was instantly marked and analyzed globally. As an analyst hinted at the changing contours of energy politics post-Saudi-Iranian détente, project of this scale in the energy sector can have consequences that go beyond economics.
“We have heard about this refinery for a few years now,” said Mohammad Sohail, CEO of Topline Securities. With local participation, the process seems to be gaining momentum. In reality, this is a long-term project, and how aggressively both governments adhere to their commitments will determine how much money is invested.
Almost three years after the project was first conceived in 2019, Pakistan inked the $10bn joint venture agreement with the Kingdom of Saudi Arabia to build an integrated greenfield oil refinery at Gwadar with a processing capacity of 300,000 barrels per day (20 million tons per year).
In a refining project that surpasses Pakistan’s current total oil processing capacity, four state-owned companies, Oil and Gas Development Company Limited (OGDCL), Pakistan Petroleum Limited (PPL), Pakistan State Oil (PSO) and Government Holding Private Limited (GHPL), will partner with Saudi giant Aramco.
Pakistan’s current annual refined oil demand is around 33 million tons against a capacity of 20 million tons. However, the actual production is only 11 million tons, which is one-third of the capacity and almost half of the need. A lack of refinery upgrades and other constraints further undermine the country’s limited refining capacity. There have been only two refineries built in Pakistan in the past few decades.
Experts say that even though there are no complete details yet about the multi-billion dollar deal, what little is known holds great promise.