Govt offers incentives to oil refineries for producing eco-friendly fuels

ISLAMABAD: The federal government has decided to offer a
lucrative package of five-year tax holidays to encourage the oil refineries
to upgrade their infrastructure and revert to producing fuels compatible
with the international standards, WealthPK reported on Monday.

Under the proposed Pakistan Oil Refinery Policy, 2021 the oil refineries
were given the December 2021 deadline to come up with their respective
up-gradation plans to take advantage of the incentives offered in the
policy.

The refineries willing to revamp their plants would be given incentives,
including five-year tax holidays on import of crude oil and tariff
protection in their prices, which will earn them additional revenue to
invest, upgrade and remain in the business.

“After submitting the revival plans, the refineries will be required to
fully implement the plans in five years, meaning they would have to fully
upgrade their system by the years 2026-27,” the policy proposes.

Currently, five refineries are operating in the country with an overall
crude oil refining installed capacity of 417,400 barrels per day (BPD). Pak
Arab Refinery Limited (Parco) has 100,000 BPD oil refining capacity, Attock
Refinery Limited (ARL) 53,400 BPD, Cnergyico 150,000 BPD, National Refinery Limited (NRL) 64,000 BPD and Pakistan Refinery Limited 50,000 BPD, according to the Economic Survey 2019-20.

As per the data, Pakistan’s total consumption of petroleum products stood at
19.68 million tonnes (MTs) during the fiscal year 2019-20, out of which
11.59 MTs were secured through local refineries and 8.09 MTs through
imports.

The total petrol consumption in the country is about 7.6 MTs per annum, out
of which 30 per cent is catered to from local refineries and the rest is imported to
meet the local demand.

Similarly, the consumption of diesel is around 7.3 MTs per annum. The local
production meets 65pc of the total demand, while the rest is imported.

Some $4.9 billion worth of finished petroleum products were imported in
2020-21 compared to $2.32 billion imported in 2019-20.

The oil refineries still produce 30pc to 40pc furnace oil while refining the
crude oil, whereas the consumption of furnace oil saw has seen a big dip in
Pakistan from 9.6 million tonnes in 2016-17 to less than three million
tonnes in 2020-21.

The refineries in Pakistan have configured their plants in a way to produce
mainly diesel, furnace oil, and petrol. Four refineries are based on
hydro-skimming technology, producing approximately 40pc to 45pc of diesel, 30pc
to 40pc furnace oil, and 15pc to 20pc petrol, based on the type of crude they
process.

So, the sharp reduction in the demand for furnace oil used in the country
has also constrained the local oil refineries to run at full capacity as the
furnace oil storage capacity and its disposal has become a major issue for
them.

The sprucing up of the existing refineries would help them reduce the
furnace oil production to less than 20pc and enhance the production of
environment-friendly fuels like Euro-5 and Euro-6.

The upgradation would also help cut imports of refined products
substantially and save a net $5-6 per barrel on import substitution at
local refineries.

Under the proposed Pakistan Oil Refinery Policy 2021, tax would be enhanced
on the imports of finished products, and the government would utilise this
amount toward the refurbishment of the oil refineries on a 30-70 basis,
meaning the government would contribute 30pc of the total upgradation cost,
while the rest would be borne by the refineries themselves.

Byco, the single largest oil refinery in Pakistan with an installed
processing capacity of 155,000 barrels per day of crude oil plans to invest
$800 million on restructuring with the addition of different types of 14
units to convert the out-of-demand furnace oil into the advanced quality of
Euro-5 and Euro-6 petrol and diesel, Cnergyico Chairman Mohammad Wasi
Khan had told the media recently.

“We will stand fully upgraded over the next three to four years. As per our
plans, we are to implement an upgradation plan by the year 2025,” he said.

The other refineries would also be working on the refurbishing of plants to
take full advantage of the incentives given by the government.

The government also plans to attract some $10 to $15 billion investment
from Saudi Arabia and UAE for the establishment of a deep conversion
refinery and petrochemical complex in Pakistan.