Jordan Times
Sunday, October 16, 2005
Jordan Petroleum
Refinery puts $800 million expansion scheme into gear this month
By Samir Ghawi
AMMAN — The Jordan Petroleum Refinery Company (JPRC)
will put its $750-800 million expansion scheme into gear this month, JPRC Chief
Executive Officer (CEO) Ahmad Refai said Saturday.
He said the company is examining bids received in response to the tender in
which the JPRC invited interested parties to submit offers for shouldering the
task of financial consultant.
“By the end of this month we will select a financial consultant which will
undertake the responsibility of writing down the terms of reference for
attracting a strategic partner to the expansion scheme,” Refai said.
He expected the financial consultant to start evaluating the interested
investors for partnership at the beginning of next year.
Refai discounted the option of obtaining a loan for the expansion because the
amount is large and would entail heavy servicing costs.
“A strategic partner is a better choice and a more feasible approach,” he
remarked.
The JPRC chief also ruled out the possibility that another company would venture
into setting up a new refinery in Jordan once the concession enjoyed by JPRC
ends in February 2008.
According to Refai, a new refinery carries around $1.5 billion price tag whereas
an expansion would be in the $750-800 million range including all costs
associated with the purchase of equipment.
He explained that the expansion will only involve installing additional units
which will raise the production capacity.
“The enlargement of the refinery will not require land purchases,” he remarked,
noting that real estate dealers were quick to contact the company with offers
when the expansion plan was floated few years ago.
Refai said the JPRC has conducted all the studies and is fully ready now to
begin the expansion process which, upon completion in 2010, will “usher a new
era for the company in all aspects.”
“After five years, the output capacity will be raised to around 17,500 tonnes
per day,” he pointed out, noting that demand is expected to reach five million
tonnes a year at that time.
Besides boosting the production level, the JPRC chief emphasised that the
quality of all the petroleum products will be improved to match the highest
European standards.
“We will be able to transfer the heavy fuel oil into lighter products that have
higher value,” he remarked.
At present, the refinery produces 14,200 tonnes a day, a level that already
exceeds the 12,500 tonnes (100,000 barrels) a day normal capacity.
Within this context, Refai indicated that although the company refines 4.2
million tonnes annually, it imports one million tonnes a year of gas oil
(diesel), gasoline (unleaded) and LPG (liquefied petroleum gas) to suffice the
market's needs.
He stressed that the import process is executed in full transparency through
open tenders and that the results are published at the company's website
www.jopetrol.com.jo.
Asked for details about crude oil imports, sales, costs, subsidies and financial
results especially profitability, the refinery's CEO deemed it necessary to
clarify at the onset that the JPRC is not a government entity but a public
shareholding company owned by private investors.
“Out of the company's JD32 million / shares in capital, the government's equity
is only JD91,425 or 0.286 per cent,” Refai said. “But under the terms of the
concession granted by the government, the crude oil purchases, pricing and
profits are determined by the government.”
He added that the concession terms confine the role of the company to refining
and distribution of oil derivatives and limit the dividends to shareholders to
no more than 16 per cent including income tax but also to no less than 7.5 per
cent.
Noting that the JPRC's annual turnover is around JD1 billion, Refai said the
shareholders regularly receive around JD4 million in dividends annually with the
balance going to the state treasury.
“We operate on a Cost Plus basis,” he emphasised, “making it hard for us to
boost efficiency and improve productivity.” However, to ensure more controls on
operations the company in 2005 started for the first time to prepare budgets.
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Refai explained that the company, on behalf of the government, contracts ARAMCO
for three million barrels of crude oil supplies each month. The cost of this
amount is calculated according to a specific equation based on an average
monthly price of Dubai and Oman crude.
He confirmed that no oil grants were received since last April and that the oil,
at the current level of $60 a barrel crude prices, requires about JD500 million
in government subsidy.
Refai highlighted the role of the refinery by pointing out that the company
saves the country $150 million through its refining activities instead of
purchasing the oil derivatives from abroad.
He also highlighted the cost of refining which he said stands at $1.37 per
barrel in Jordan compared to $1.9 per barrel at other refineries in the
Mediterranean region, particularly because of lower labour costs.
JPRC employs around 4,000 workers of whom about 290 are tank drivers.
“Twenty-five per cent of our output is outsourced to transport firms,” remarked
the CEO who does not see a need for the company to be involved in the transport
process.
In addition to the refining, distribution and transportation activities, the
company operates factories for the production of lube-oils, LPG cylinders'
repairing, three LPG filling stations in Zarqa, Amman and Irbid as well as
storage facilities in Aqaba and at the three airports in Jordan.