Four out of five refineries raise concerns on Pakistan Oil Refining Policy 2023

ISLAMABAD: Four out of five refineries of the country raised a number of observations on the final draft of Pakistan Oil Refining Policy 2023 and Cabinet Committee on Energy (CCoE) has been grappling with the challenges in implementing the Policy (Pakistan Oil Refining Policy 2023).

This disclosure was made in a meeting of the CCoE which was held on November 22, under the chairmanship of the Minister for Power & Petroleum. The meeting focused on a summary submitted by the petroleum division on November 21, 2023, highlighting implementation issues and sought resolutions for the upgradation of existing/brown refineries.

The Pakistan Oil Refining Policy 2023 was aimed to upgrade the existing refineries to produce environment friendly Euro-V fuels and decrease the production of furnace oil.

To achieve this objective, the Policy provided incremental incentives of 2.5 percent on HSD (in addition to current 7.5pc) and 10% on MS in the form of deemed duty for six years starting from notification of the Policy. The incremental incentive would be deposited in an escrow account maintained by OGRA with respective refinery for meeting upto 25% of the upgradation cost. OGRA would allow withdrawal of funds from escrow account by the respective refinery, post financial close of the upgrade projects and against expenditure made for each milestone/deliverable. To avail the said incremental incentive, the refineries were required to execute an upgrade agreement, open an Escrow Account and provide Rs 1billion bank guarantee to OGRA within three months of notification of the policy i-e 16th November 2023, in case the refineries did not execute the policy envisioned that they would not be allowed to produce and market petroleum products below Euro-V specifications after 16th February 2024.

However, according to sources, the challenges emerged as four out of five refineries raised significant concerns in a joint letter dated November 13, 2023. These concerns included the continuation of the 7.5% deemed customs duty on HSD beyond the stipulated six-year period, tax exemptions on incremental incentives, flexibility in confirming product outcomes, objections to the unilateral appointment of an arbitrator, and requests for clarity on contractual issues such as force majeure, termination, relinquishment, and timeline extensions.

During the ensuing discussion made in the meeting of CCoE held on November 22, 2023, it was pointed out that refineries should have been adequately consulted during the process of policy formulation as such issues as mentioned in the summary could have been dealt at that stage. It was also pointed out that it seemed that the policy margin require revision since the reform are now raising concerns. It was also added that implementation mechanism should have been clearly spelt out in the Policy. At the same time, it was also mentioned that issue of taxation should be sorted out with the FBR.

It is pertinent to mention that the CCoE held on November 22, 2023 had directed the petroleum division to obtain formal views from the Federal Board of Revenue (FBR) regarding proposed tax exemptions, essential for advancing the policy’s execution. Additionally, the committee (CCoE) instructed the division to present a progress report on the policy’s implementation in every meeting for ongoing updates. Acknowledging the complexities involved, the CCoE approved an extension of the deadline by sixty days, effective from November 16, 2023.

Pursuant to the approval of the Cabinet Committee on Energy (CCoE) vide case No. CCE-11/02/2023 dated 07-08-2023 and ratification by the federal cabinet vide case No.130/25/2023 dated 09-08-2023, petroleum division notified the Pakistan Oil Refining Policy 2023 and forwarded the same to Oil & Gas Regulatory Authority (OGRA) and refineries for implementation.