Next CCoE meeting likely to take decision over incentives for oil refineries

Efforts to explore oil, gas stepped up to cut import bill, says Hammad as Energy Ministry awards licences for oil, gas exploration in Attock, Loralai

ISLAMABAD: The next meeting of the Cabinet Committee on Energy (CCoE) is likely to take a decision over the Petroleum Division’s summary to ensure incentives for oil refineries.

According to sources, the upcoming meeting is likely to be held in the near future and grant an approval to the summary.

“A key huddle convened on October 11, by the Petroleum Division had developed consensus among the stakeholders regarding incentives for refineries of the country,” said sources.

They added that the petroleum division has prepared an updated summary which include changes such as a 30pc cap on the project cost instead of the previous 40pc, a 10pc tariff protection for the existing refineries on motor gasoline and diesel with the construction of up-gradation projects before December 31, 2025, and abolishing the 10-year tax holiday for existing refineries etc.

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Earlier, the CCoE while approving the Oil Refinery Policy, 2021, in principle had raised questions over proposed incentives for refineries. The CCoE had questioned the use of incremental revenue, utilisation of deemed duty by refineries and the collection of revenue and its utilisation if the government allowed a 10pc tariff protection.

The energy minister had also opposed the policy and some of the incentives.

Documents available with Profit show that there will be a tariff protection in the form of 10pc import duty on motor gasoline and diesel of all grades as well as imports of any other white product used for fuel for any motor or engine, effective from the date of the commission for six years, provided that a refinery starts construction of a project before December 31, 2025.

Similarly, there will be no import duties and sales tax on the import of petroleum crude oil with effect from July 1, 2022, being the primary raw material. However, the finished products shall be subject to import duties and sales tax notified by the competent authority from time to time.

Profit also learnt from the government would issue a pricing mechanism for the pricing regime for new refinery projects that shall be no less favorable than the prevailing mechanism till deregulation.

The product pricing formula of refineries will be based on true import parity price (IPP), to be derived from Arab Gulf Mean FOB spot price, or if not published, shall be derived from Singapore Mean FOB price.

The government will add all other elements, including premium, freight, port charges, incidentals, import duties, exchange rate, provincial taxes as applicable, and different price adjustments as per PSO actual imports, in the FOB price arrive at the true IPP.

Additionally, prevalent inland freight of imported crude oil to refineries and provincial duties, levies, and taxes at the import of crude oil shall be added for refineries.

All new deep conversion oil refinery projects of a minimum of 100,000 bpd refining capacity as well as infrastructure projects mentioned in the policy, to be set up anywhere in the country, that start the construction of the project before December 31, 2025, shall be eligible.

The new deep conversion refinery shall maximize conversion of bottom of the barrel to value added products.

It is pertinent to mention that the government had already approved a 10pc upfront tariff for the existing tariff in the FY22 budget. The government, through the new policy, intends to provide necessary incentives and tariff protection to attract an investment of $10-15 billion in the sector as well as supporting existing refineries in their modernisation and upgradation efforts, being a strategic asset to the country.

In a separate development on Wednesday, the Ministry of Energy awarded licences to carry out oil and gas exploration activities in Attock district of Punjab province and Loralai district of Balochistan, under its strategy to make the country self-reliant in energy sector.

Minister for Energy Hammad Azhar witnessed the Petroleum Concession Agreements (PCAs) and Exploration Licences (ELs) awarding ceremony, a Petroleum Division news release said.

Azhar said $30,000 would be spent to undertake social welfare activities in each well-drilling locality every year, which would help generate economic activity there and uplift the standard of living of locals.

He expressed confidence that with successful drilling and subsequent discoveries of hydrocarbon deposits, the country’s fuel import bill would reduce, adding the government had stepped up the efforts to identify and exploit the untapped existing mineral resources in potential areas across the country.

The minister said the government would award offshore oil and gas licences in the coming few months, adding that it was in the process of establishing new terminals for increased import of Liquefied Natural Gas (LNG) aimed at meeting the country’s ever-growing energy needs efficiently.

Besides, he said exploration activities had been initiated on war-footing to discover new oil and gas reservoirs in the country.

The work on Block No. 3068-9 (Nareli), located in Harnai, Sibi and Loralai districts of Balochistan, would be carried out under a joint venture of M/s Mari Petroleum Company Limited (MPCL), M/s Pakistan Oilfields Limited (POL) and M/s Spud Energy Private Limited (SEPL).

While the work on Block No. 3372-25 (North Dhurnal), located in Attock district of Punjab, would be carried out under a joint venture of M/s POL and MPCL.

The minimum firm work commitments for both blocks are $24.32 million for a period of three years.

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Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected]

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