Marubeni Arranges European Investment Bank Loan for Pakistan

Aug. 18. 2003
Marubeni Corporation

Marubeni Corporation has assisted the major Chinese construction company, CPECC, to win the contract for the White Oil Pipeline Project (approximately US$320 million) and has brokered the first loan to a Pakistani company from the European Investment Bank.

This project calls for the construction of a pipeline from Karachi, Pakistan's commercial capital, to Mahmood Kot, which is located 782 km north of Karachi. The project is managed by the BOO method by PAPCO (Pak-Arab Pipeline Company Ltd.), headquartered in Islamabad. PAPCO is a consortium led by PARCO (Pak-Arab Refinery Company Ltd., head office: Karachi, president: Mr Shahid Hak), which owns and operates the largest petroleum refinery in the country. PAPCO, which is also headed by Dr. Hak, is co-owned by Shell, Caltex, and Pakistan State Oil.

PARCO completed a pipeline between the two cities in 1981, and had used it to transport petroleum products. After a petroleum refinery was constructed in Mahmood Kot in 2001 and it began operating, the pipeline was used to transport only crude oil to the refinery. Since then, petroleum products have been shipped by truck. As truck transportation could not cover the robust annual increases in the demand for petroleum products in Northern Pakistan, and from the point of view of alleviating air pollution and traffic congestion on principal roads, it has become necessary to construct a pipeline for petroleum products alongside the original pipeline.

Marubeni and JGC Corporation received an order from PARCO in October 1997 for the construction of a new petroleum refinery with a capacity of 100,000 barrels per day. The project was granted a loan of $500 million from JBIC (Japan Bank for International Cooperation), and has become a project symbolic of the cooperation between Pakistan and Japan. Recognizing Marubeni's track record in the petrochemical field, PARCO requested us to act as an intermediary for the realization of the pipeline project.

<Pipeline construction>
Five companies from around the world tendered their bids for the pipeline construction. With Marubeni's assistance, CPECC (head office: Beijing, president: Mr Zhang Weijiu), was awarded the contract. The construction began in January 2003 and is scheduled for completion in around August 2004.

<EIB loan>
By arranging for an EIB loan of $50 million, with preferable terms including a repayment period of 15 years and a low interest rate, Marubeni helped improve the economics of the project. In this two-step loan arrangement, the loan agreement was concluded between EIB and PARCO, and PARCO will re-lend the loan to PAPCO.

Pakistan's economy struggled due to the economic sanctions imposed after it conducted a nuclear experiment in 1998, and it was obliged to seek rescheduling of its foreign debt. The loan by EIB is significant as it is anticipated to encourage loans from other international financial institutions to Pakistan. Marubeni has worked between EIB and PARCO for over two years since the project was first introduced, in order to meet the stringent environmental criteria imposed by EIB. The result of this effort was the conclusion of the loan agreement.

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