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Poor infrastructure, rising instability force Saudi Arabia to shift Gwadar refinery to Hub near Karachi

Is the Gwadar port becoming unviable as an investment destination (Photo: IANS)

In a big blow to the China Pakistan Economic Corridor (CPEC) project, Saudi Arabia has decided to relocate its planned refinery from Gwadar port city to Hub–an industrial township close to Karachi.

The refinery had been announced during the visit of Crown Prince Muhammad bin Salman of Saudi Arabia to Pakistan in February 2019 with investments worth $20 billion signed between the two nations. With no progress happening on the oil refinery, which itself was a $10 billion project, the Saudis have decided to move it to Hub.

BBC Urdu reports from Pakistan that a number of officials involved in the project have confirmed that the oil refinery is being considered for construction in Hub due to infrastructural and feasibility issues in Gwadar.

Reportedly, the kingdom also lost interest in the project due to a downturn in bilateral relations with Pakistan's overactive foreign policy within the Islamic world.

The refinery was not just meant to produce petrol and diesel. It was supposed to be a Deep Conversion Refinery–a petrochemical complex, under which the Saudi project would also have produced lubricants. Nikkei Asia too had reported that Gwadar as a destination had infrstructure gaps.

Quoting unidentified sources from the oil and gas sector in Pakistan, BBC Urdu adds that the plan to set up the refinery in Gwadar seemed unworkable. Aramco conducted a feasibility study which found that it would have to construct a new pipeline from Gwadar to Karachi to be able to transport the products from the refinery, making the project unviable. The use of tankers to ferry the refined oil products would have added to the cost of the Gwadar refinery.

The alienation of the local Baloch people in Gwadar with rising attacks on Chinese nationals working on CPEC projects has given rise to an uncertain atmosphere about Gwadar as an investment destination.

Experts point out that this also shows that Gwadar port–the jewel of China's CPEC and the 'Singapore of Pakistan'–has infrastructural shortcomings that have disallowed investment. CPEC projects have slowed down considerably in Pakistan.

Tahir Abbas, Head of Research of Arif Habib Limited, told BBC Urdu that for any investment, the first thing to look at is whether its future outlook is positive. "After the establishment of the refinery, how will the products produced in it be consumed when the government in the country is working to promote electric vehicles and hybrid vehicles," he said.

With the relocation of the refinery almost final, Pakistan is now planning to conduct a feasibility study for Hub. State oil marketing company, Pakistan State Oil (PSO), has reportedly contacted Saudi company Aramco for setting up the refinery for Hub.

The relocation of the Saudi project is also a pointer to the unease over the $62 billion CPEC that exists between all-weather friends Pakistan and China.