The year under review saw a fluctuating trend in international petroleum prices wherein the first half of the year depicted a consistent downward movement for prices and correspondingly refining margins. This trend in the first half of the year was triggered by various factors including low demand of heating oil in the US due to mild weather, high product inventories and higher crude throughputs thus resulting in a drag on refining margins. However, the second half of the year saw a trend reversal where international petroleum prices regained their upward momentum and remained consistently high thereby favorably impacting refining margins. This upsurge was mainly on account of increased demand for adequate supply of gasoline in USA ahead of the peak driving season, growing geo-political tension in the Middle East, buoyant Naphtha demand, planned refinery shut-downs and continuing supply restraint by OPEC. Arab Light crude which constitutes bulk of your refinery's crude recipe, reached an all time high of $69.9 per barrel in August 2006 and then to a year low of $52.1 per barrel in January 2007. On average, the price of Arabian Light crude increased to $61.4 per barrel depicting an increase of 5% in comparison with last year.

The economy of our country remained under pressure during the year due to the threat of increasing inflation and volatile movement in international petroleum product prices. Petroleum products off-take in the country increased to 16.76 million metric tons as compared to 14.48 million metric tons last year, registering an increase of 15.7%. This was mainly on the back of increased demand for furnace oil, which grew by 47.3%, from the power sector due to growth in electricity demand and frequent interruptions in gas supplies.

This in turn led to an increase in import of furnace oil during the year. Despite sustained GDP growth of 7.0% on average for the past four years, its impact could not be translated into robust demand for other petroleum products. Motor Spirit sales volume remained depressed, registering a decline of 26.9% from the previous period due to a shift in consumer preference towards cheaper CNG alternative.

During the year, your refinery operated at a capacity of 5871 metric tons per day versus 5964 metric tons per day last year and successfully completed the 28 days turn-around which was carried out during August 2006 after 52 months of continuous operations of the refinery. The suspension of refinery operations during August impacted sales revenue which decreased by 5.8% as compared to last year. Your refinery successfully optimized its product slate to suit market conditions of product demand. Consequently, your refinery was able to increase its Naphtha exports by 20% in comparison to last year as local demand of Motor Gasoline registered marked decrease. Sales of jet fuel to defense forces, now completely on JP-8 product specification also saw a healthy rise in sales to 90,576 metric tons versus 72,898 metric tons, an increase of 24.3% as compared to last year.

The refinery also had the honor to receive the "Special Merit Exporter Award for 2006" for its exports and foreign exchange earnings of Rs. 8.4 billion by the Federation of Pakistan Chamber of Commerce & Industry (FPCCI). I am pleased to inform you that despite challenges posed by thin refining margins and scheduled turnaround in the first half of the year, your Company managed to earn robust after tax profit of Rs 250.8 million during the current year which translates into an earnings per share of Rs 8.36. The reserves of the Company continue to be healthy at Rs 4.5 billion as at June 30, 2007.

Your Company has been passionately involved in fulfilling its social responsibilities through its Corporate Social Responsibilities (CSR) program. The CSR program is designed with an aim to serve humanity and help alleviate the social and economic conditions of the needy, especially in areas of health and education. Since 2005, PRL has been voluntarily adopting the charter of United Nation's Global Compact Principles. During this year, your refinery made a focused effort towards assisting local charity-run hospitals to undertake much needed renovations and procuring updated equipment. In the area of education, a considerable sum was spent to renovate two government run primary schools where major structural renovations were carried out along with providing basic educational amenities like uniforms and stationary. Additionally, funds were handed over to various responsible institutions and non-governmental organizations (NGO's) who work on humanitarian grounds and provide free services like eye check up and surgery, AIDS awareness programs etc.

Your Company has once again successfully complied with all HSEQ parameters. Both internal and external surveillance audit by PRL and by the Bureau Veritas was carried out successfully for ISO-9001:2000, ISO-14001:2004 and OHSAS- 18001:1999. The Total Recordable Case Frequency (TRCf) for the year is now reduced to 1.22 as compared to 1.5 last year. Your refinery also ensured that all parameters of effluent and emissions remain within the National Environmental Quality Standards (NEQS) and results are being voluntarily submitted to Pakistan & Sindh EPA. Your refinery has scored a hat-trick by receiving “ACCA-WWF Best Environment Reporting Award” for the third consecutive year for its responsible HSEQ reporting. Other accolades in HSEQ include, "Annual Environment Excellence Award 2006" organized by National Forum for Environment and Health, "Occupational Health and Safety Award" for best practices from Employers Federation of Pakistan and "Excellence in Environment Award" from HELP.

On behalf of the Board, I would like to thank the outgoing directors, Mr. Quentin D’Silva, Mr. S. Ali Raza and Mr. Sabar Hussain for their valuable contribution as guardian of all stakeholders of the Company and welcome on board Mr. Asif S. Sindhu, Mr. Shahid Anwar Khan and Mr. G. A. Sabri.

It has been a landmark year for the refinery as your Board has finalized the investment plan and I am leased to inform you that your Company will be making a total investment of USD 320 million for up gradation of the refinery operations. This up gradation plan will help the refinery in meeting future product specification requirements and will also sustain future profitable operations of the refinery. This heralds a new era in the history of the refinery and makes way for your refinery to continue to be a strategic player in the economic scenario of the country.

The results of the year could not have been achieved without the devotion, hard work and commitment of all employees of the Company. On behalf of the Board, I would like to acknowledge and appreciate the employees' unyielding contributions for the Company.