Effect of currency transfiguration and hedging on the profitability of oil refineries in Pakistan

Abstract

This project is an analysis into the operations of the Attock Refinery Limited and a study of the losses faced by them due to exchange rate fluctuations.The main objective of this project is to analyze the impact of the hedging and future contracts and currency exchange rates on the profitability of the Attock oil Refinery. The methodology that has been used is a generic one using secondary information on the company. According to the rules and regulations made by the Pakistan’s Government and(OGRA) which is the only price regulatory authority of Pakistan, the refinery industry is not allowed to make future contracts or involve in hedging. However, we have assumed otherwise for the purpose of our study. This restriction in reality turns the tables of profits for the overall industry as they have to make their payments in US dollars. However, through other means,ARL is currently investing in other assets like investment in fixed deposits among other such schemes to tone down the effects of the currency exposure. The findings of the ratio analysis on profitability were not very positive and a dire need for heavy investment in other financial and non-financial sources, like interest on delayed payments, has to be undertaken to cover losses.