PACRA Maintain Entity Ratings of Pakistan Refinery Limited

Pakistan Refinery Limited's ("PRL" or "the Company") assigned ratings reflect its strategic importance in Pakistan's downstream energy chain and its association with Pakistan State Oil Company Limited, the Country's largest oil marketing company. The strong linkage between the two entities, supported by integrated supply chain arrangements and established procurement relationships, underpins operational stability and Midstream distinguishes PRL within Pakistan's refining sector. The Pakistan refining sector is inherently exposed to global petroleum price dynamics, with refinery gross margins highly sensitive to movements in crude oil and refined product benchmarks, and PRL's hydro-skimming configuration makes it particularly responsive to swings in the crack spread environment. In FY26, the operating environment was defined by a regional conflict in late February that led to the temporary closure of the Strait of Hormuz, the key transit route for Pakistan's imported crude. The disruption caused crude prices to surge, freight and insurance costs also escalated sharply, with marine war risk premiums reaching around USD 4 million per vessel and effectively doubling the landed cost of an Aframax cargo. As a coastal refinery largely dependent on seaborne crude imports as 15 to 20% is local crude, PRL was directly exposed to both supply chain dislocation and significant cost inflation. However, the Company actively managed these constraints through adaptive supply chain arrangements and responsive operational decisions, including alternate sourcing strategies that helped sustain continuity of operations and mitigate disruption impacts. At the same time, the crisis led to a sharp widening in product crack spreads, with high-speed diesel and MS margins rising sharply. This resulted in a broader sector-wide swing from losses to a profit of approx. PKR 43bln in Q3FY26. Within this environment, PRL delivered a financial turnaround of material significance. For the nine months ended March 31, 2026, the Company reported a profit after tax of PKR 12.08bln, a sharp reversal from a net loss of PKR 4.59bln in SPLY. 3QFY26 alone contributed a PAT of PKR 9.9bln, supported by the Company's highest-ever gross profit of PKR 18.9bln and record gross margins of 19.4%. The improvement in profitability was driven primarily by the extraordinary widening in HSD crack spreads during the crisis period, alongside volumetric growth in both diesel and motor gasoline sales as PRL maintained operational continuity through active crude sourcing management. On the upgrade front, Pakistan Refinery Limited is the only refinery in Pakistan to have signed an upgrade agreement under the Brownfield Refinery Policy 2023. Its Refinery Expansion and Upgradation Project (REUP) aim to double capacity from 50,000 to 100,000 bpd, enable Euro-V compliant fuel production, and install deep conversion facilities to significantly reduce furnace oil output, at an estimated cost of around USD 1.2bln. Key project milestones include engagement of Meezan Bank and JS Global Capital as financial advisors and execution of the FEED contract with Wood Group UK Limited. Government-level discussions are ongoing, with policy resolution seen as the key catalyst for project execution. In the meantime, the Company continues to focus on operational optimization, including crude intake efficiency and product slate management.
Going forward, the rating will remain dependent on the sustainability of PRL's profitability as crack spreads normalise from extraordinary levels, the Company's capacity to manage its leverage and meet debt servicing obligations, and most critically the pace and credibility of progress on financial close and execution of the REUP.

About the Entity
Pakistan Refinery Limited is a hydro-skimming refinery established in 1960 and listed on the Pakistan Stock Exchange, operating at 50,000 bpd at Korangi Creek, Karachi. It is a subsidiary of Pakistan State Oil Company Limited (~63.6%). Mr. Mohsin Ali Mangi, appointed CEO on April 30, 2026, brings extensive capital markets and industrial experience (including Credit Suisse Pakistan, Engro Fertilizers, and Engro Polymer). His operational and managerial expertise is expected to enhance execution efficiency and support accelerated progress on the REUP implementation and financing close.