Pakistani officials with knowledge of developments confirmed Saudi Arabia and the United Arab Emirates (UAE) would invest $25 billion each in cash-strapped Pakistan within the next five years as part of projects under a new investment council set up in June 2023.
Pakistan constituted the Special Investment Facilitation Council (SIFC), a hybrid civil-military forum, to fast-track decision-making and promote investment from foreign nations, particularly Gulf states. A notification dated June 17 from then Prime Minister Office said SIFC would seek investments in the energy, IT, minerals, defense, and agriculture sectors from GCC countries. The body, which has the army chief and other military leaders in key roles, aims to take a “unified approach” to steer the country out of economic crisis.
Sources confirmed that Pakistan’s army chief met leading business figures in Karachi and reportedly discussed the SIFC’s potential to attract up to $100 billion in investments from countries like Saudi Arabia, the UAE, Qatar, and Kuwait. “I can confirm it,” a high ranking government official said in response to a question about whether Pakistan would receive investments of $25 billion each from the Kingdom and the UAE under the SIFC. He gave a 2-5 years’ timeframe for the Saudi and UAE investments to come through and said they would be focused on the mining and mineral sectors, among others.
Pakistan has reportedly approved 20 projects to pitch for multibillion-dollar investments from the Gulf and other states under the SIFC umbrella. The identified projects include the Saudi Aramco Refinery, TAPI Gas Pipeline, Thar Coal Rail Connectivity, hydropower projects of 245 MW in Gilgit-Baltistan, handing over of 85,000 acres of land to a single investor, the establishment of cloud infrastructure, and telecom infrastructure deployment.
A delegation from Saudi Arabia arrived in Pakistan to explore investment opportunities in the mining sector as part of SIFC, aiming to tap into Pakistan’s $6 trillion estimated worth of mineral deposits. The Saudi delegation also attended Pakistan’s first dedicated summit on minerals in Islamabad. In July, Pakistan established a Land Information and Management System, Center of Excellence ((LIMS-CoE) to modernize its agricultural sector, with Saudi Arabia providing an initial $500 million investment to set up the facility.
Continued economic and investment support from Saudi Arabia and other allies such as the UAE is key for Pakistan, as economic stabilization is a major challenge with the $350 billion economy on a narrow recovery path.
Moreover, four Pakistani state-owned petroleum companies have signed a memorandum of understanding with Saudi Arabia to build Pakistan’s largest oil refinery with an investment of USD 10 billion in the strategic Gwadar Port, according to informed sources. The MoU to set up the facility with a production capacity of 300,000 barrels per day was signed with the state-owned Oil and Gas Development Company Ltd (OGDCL), Pakistan State Oil (PSO), Pakistan Petroleum Ltd (PPL), and Grand Government Holdings Private Ltd (GHPL) signed the MoU to join hands and provide comfort to the Saudi firm to enter Pakistan with a major investment.
The government headed by Prime Minister Shehbaz Sharif is reportedly in the advanced stages of negotiations with Saudi giant Aramco to execute the greenfield refinery project at the strategic Gwadar Port and wants to complete the initial paperwork.
To facilitate the Saudi investment in refining, the government has recently passed a new policy under which a new deep conversion oil refinery of a minimum of 300,000 bpd achieving financial close of the project within five years shall be eligible for a customs duty of 7.5 per cent for 25 years on petrol and diesel of all grades produced effective from the date of commissioning of the refinery.
The project envisions setting up an integrated refinery petrochemical complex with a crude oil processing capacity of a minimum 300,000 bpd along with a petrochemical facility.
The integrated complex shall comprise various components such as marine infrastructure, petrochemical complex, storage for crude oil and refines utilities, pipeline connectivity etc.
According to the officials of Petroleum Division, despite being integral to the growth of the economy, no new refinery project has materialised in Pakistan for more than a decade and only two refineries have been added in the last 40 years. Compared to the 20 million tonnes of refining capacity, the actual capacity utilisation is at around 11 million tonnes. This is mainly due to the decreasing furnace oil demand in the country as a result of a change in the energy mix in the power sector and the fixed production slate of refineries that cannot produce just petrol and high-speed diesel and all products are produced simultaneously.
Thus, as furnace oil demand declines, refineries have to lower their overall production and struggle to maintain their throughput at optimal levels. This is despite the fact that independent consultants forecast Pakistan’s demand for petrol and diesel to grow beyond 33 million tonnes per annum by 2023. The said refinery shall also enjoy a 20-year tax holiday and would also be entitled to exemption from levy of customs duties, surcharges, withholding tax, general sales tax, any other ad valorem tax or any other levies and duties on import of any equipment to be installed, or material to be used in the refinery projects without any precondition for obtaining certification by the Engineering Development Board.
These fiscal incentives and other facilitation would be recorded and protected under the project agreements between the project company, the key sponsors, investors and the concerned government and would be protected through a grant to Special Economic Zones Act. Officials said that the Saudi oil firm showed a willingness to inject the entire equity into the multibillion-dollar refinery project, leading the Pakistani government to decide on a joint venture with key SOEs.
Additionally, Saudi Arabia is moving closer to a potential deal to acquire a minority stake in a Pakistan mine controlled by Barrick Gold Corp., people with knowledge of the matter said. Manara Minerals Investment Co., backed by the Saudi sovereign wealth fund, plans to invest at least $1 billion in the Reko Diq copper and gold mining project, the people said. It could announce that it’s reached a preliminary agreement on terms of a transaction as soon as the next few weeks, according to the people.
The Saudi company may increase its investment over time in the mine, which is part-owned by the Pakistan government. Deliberations are ongoing, and talks could still fall apart or be delayed. A representative for Saudi Arabia’s Public Investment Fund, which is a major shareholder in Manara, declined to comment.
Saudi Arabia is interested to invest in multiple sectors including metals and mining, Pakistan’s officials said. A few “of those projects are now pretty close, so I do think we should hear some announcements coming through,” he said.
A potential deal would come after Saudi Crown Prince Mohammed bin Salman met Pakistan Prime Minister Shehbaz Sharif. Pakistan presented a wide range of investment opportunities including solar, mining, hydropower and technology to a visiting Saudi delegation this week, with Saudi Foreign Minister Prince Faisal bin Farhan saying the Gulf kingdom plans to move ahead with the opportunities.
The Reko Diq project, in the Balochistan region bordering Afghanistan and Iran, is targeted to begin production in 2028. Barrick owns 50% of the project, with Pakistan’s federal government holding a 25% stake and the Balochistan regional government owning the rest.
Saudi Arabia has been in talks with Pakistan to buy part of the government’s stake in Reko Diq, sources confirmed. The world’s second-largest gold producer would support any decision by the government with the Saudis, while Barrick won’t dilute its equity in the project, they said.
Although initially eying on a $25 billion bonanza, Pakistan has now adjusted its expectations to a $5 billion investment by June 2025. One of the concerns of Saudi Arabia was that Pakistan was withholding the repatriation of profits due to external sector liquidity constraints. However, Pakistan assured that Saudi investors would get priority in repatriation of profits, said the sources.
Prime Minister Shehbaz Sharif has already given instructions to the State Bank of Pakistan (SBP) to give Saudi Arabian companies preference in repatriation of the profits. Pakistan allowed $694 million repatriation of the profits during the first eight months of this fiscal year, which was more than double compared to the previous fiscal year but it was still $900 million less than the pre-crisis period.
Despite a liberal and attractive investment regime, Pakistan’s annual foreign direct investment has remained in the range of $1.5 billion to $2 billion. It had earlier offered special incentives to Beijing under the China-Pakistan Economic Corridor (CPEC) that resulted in a total of $25 billion in Chinese inflow, mostly in the shape of loans and a component of investment.
The maximum 50% return on the investment has been indicated for the Greenfield Mine Development, Khuzdar, project, which is said to be the third largest mining project after Reko Diq and Thar coal, according to the sources.The government has estimated an initial investment of $154 million and with the 50% IRR, the payback period is projected at five years.
Pakistan has also indicated higher returns on investment in the agriculture sector. It has offered Saudi Arabia to set up a cattle farm in Punjab for 30,000 animals with an annual production of six thousand tons of meat. The initial indicated size of investment is over $25 million and the payback period is just three years with a 34% return on the investment. The sources said that Saudi Arabia was also interested in getting agricultural land on lease but the details have yet to be finalized. Pakistan pitched Saudi Arabia to acquire 50,000 acres of land on lease for corporate farming.
A government official said that the Saudi Agricultural and Livestock Investment Company (SALIC) showed interest in the project and a memorandum of understanding could be signed during the next week’s visit of Prime Minister Shehbaz Sharif to the Kingdom. The government has indicated a 22% return on the investment in corporate farming with a payback period of only six years, said the sources. The sources said that due to the lack of availability of water corporate farming cannot begin for at least one and a half years.
The profitability for the majority of the projects is estimated in the range of 14% to 15% with some falling in the profitability of 19-20%, said the sources. The semiconductor development and Chip packaging project is also pitched for Saudi investment of $270 million with an indicated profitability of 17%, said the sources. This project will have a payback period of seven years, they added. The sources said that Pakistan has indicated that it would dilute 25% shares of the Reko Diq project to Saudi Arabia, which are currently held by three federal government-owned companies. The project is highly capital-intensive.
A $2 billion project for a strategic rail link development connecting Reko Diq mines with Gwadar port has also been offered to Saudi Arabia. Pakistan has indicated a 20% return on around $1.5 billion investment in the development of the Iron Ore Mining and Steel Mills Complex at Chiniot, Punjab. The project will have a payback period of 9 years, said the sources. Despite surplus electricity, the government has offered Saudi Arabia to set up a 600MW Solar Park at Kot Adu, Punjab with a $300 million equity investment. The indicated return on the investment is 13-14%, which Pakistani authorities said can be further negotiated.
The government also wants Saudi investment in a 1320 MW Thar Coal power project on a cost-plus tariff basis despite the country not needing any new investment in the power sector. There will be guaranteed dispatch and a 14% return over the investment cost, said the sources. The project will also get tax exemption and protection from political force majeure. A $680 million transmission line project has also been offered to Saudi Arabia with a 14% return on investment and a payback period of seven years, said the sources.
