ISLAMABAD: The Cabinet Committee on Energy (CCoE) is scheduled to meet on Thursday to consider granting its formal approval to the Pakistan Oil Refining Policy 2021.
The meeting will be held under the chair of Minister for Planning, Development and Special Initiatives Asad Umar and is reportedly going to take up four agenda points, including the Draft Pakistan Oil Refining Policy 2021, Import of Oil and Port Constraints at Karachi, inquiry committee constituted by GHCL regarding the damage of gas turbine No.14 of a 747MW combined cycle power plant in Guddu, and the monthly report sheet of power plants operated out of merit, besides and any other item with the permission of the chair.
According to sources, the Petroleum Division has forwarded an updated summary to CCoE which includes changes such as a 30 per cent 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.
Sources have reported that the CCoE is expected to give a formal approval to Pakistan oil Refining Policy 2021 in the upcoming meeting.
Earlier, the committee while approving the policy in principle had raised questions over proposed incentives for refineries. It 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 CCoE as informed that the five refineries had collected approximately Rs200 billion on account of deemed duty from 2002 to 2020 and utilised Rs199 billion on up-gradation of their plants, with BYCO emerging as the only refinery which spent Rs15 billion more than its collection under the head of deemed duty during this period.
Details show that Pak Arab Refinery (PARCO) collected Rs76 billion and spent Rs66 billion, Attock Refinery Ltd. collected Rs47 billion and spent Rs26 billion, National Refinery Ltd. collected Rs40 billion and spent Rs37 billion, Pakistan Refinery Ltd. collected Rs36 billion and spent Rs17 billion while BYCO Petroleum Pakistan Ltd. collected Rs38 billion and spent Rs53 billion during the said audit period.
In order to ensure supply of quality products to consumers, the government has been constantly improving the desired specifications of refinery products to remain aligned with the global refinery market as well as international quality benchmarks. Improvement in product standards has led to the up-gradation of existing plants to remain commercially viable against the headwinds of import of oil products from the international market.
As per sources, the five existing refineries have constantly been upgrading their installed configurations in compliance of new specification and to compete with international suppliers in line with the tariff protection formula given in the budget speech on Finance Bill 2002, whereby refineries were required to operate and compete in the market at their own, without the pre-condition to upgrade.
“Local refineries have made improvements in the product specifications of petrol and high speed diesel (HSD),” sources said. They added that the refineries have made an investment of Rs200 billion against the collection of deemed duty.
The collection of the deemed duty had been a controversial subject as many believed that the refineries received billions of rupees but did not invest in plant upgrades until the Petroleum Division, in September this year, settled the decade-old controversy by assuring that they invested Rs200 billion in projects.
The deemed duty was introduced post-abolition of the guaranteed return formula (10-40pc) in 2002 with the purpose of running the refineries on a self-financing basis, offsetting losses and expanding/upgrading. A 10pc tariff protection was introduced for diesel and 6 per cent for JP-4, kerosene and light diesel oil.
However, in 2007-08, the tariff protection was limited to diesel and was slashed to 7.5pc, effectively reducing the tariff protection to around 2pc for the overall production slate.
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 that 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.
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 maximise conversion of the 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.
