LAHORE
Oil refineries in Pakistan may not complete their up gradation and expansion this time as well, despite being given additional 18 months including an extension in deadline in the production of Euro II grade HSD, official documents available with Pakistan Today reveal.
The documents mention that in case any refinery has failed to meet the new target date, the penalty will be imposed on that refinery for producing low-grade HSD as already contained in the ECC’s decision of February 26, 2013.
According to the decision taken by Economic Coordination Committee (ECC) on March 8, 2013, Pakistan Refinery Limited, National Refinery Limited, Attock Refinery Limited and Byco Pakistan Refinery Limited were required to set up Diesel Hydro Desulphurisation (DHDS) plant by December 31, 2015 for the production of Euro-II (0.05pc) quality and environment friendly High Speed Diesel (HSD).
ECC of the cabinet has given an additional 18 months to refineries for up gradation and expansion, including an extension of deadline in the production of Euro II grade HSD.
After a detailed discussion on April 2016, the ECC approved the recommendations of petroleum ministry prepared with “guidance” from the oil refineries. Additionally, the refineries were also required to set up isomerization plants to enhance the local production of motor gasoline to reduce dependence on its import.
To provide incentives to the refineries, ECC, subject to certain conditions contained in its decision, had to enhance the existing 7.5 per cent import duty (deemed duty) on HSD to 9 per cent with effect from January 01, 2016, which was available to the refineries till the time of complete deregulation, subject to completion of DHDS by December 3, 2015.
Moreover, the ECC also deferred the penalty clause till December 31, 2015, on the production of low-grade diesel which was earlier approved by ECC on February 26, 2013.
The ministry of petroleum and natural resources submitted the proposals for consideration of the ECC stating that the deadline for completion of isomerization and DHDS projects in order to enhance PMG production and to produce Euro-II grade HSD may be extended from January 1, 2016, to June 30, 2017.
In case any refinery fails to meet the new target date, the penalty will be imposed on that refinery for producing low-grade HSD as already contained in the ECC’s decision of February 26, 2013.
The ECC was told that refineries could not complete requisite up gradation work within the approved time limit of December 31, 2015.
This was the third extension to refineries but as conveyed by the refineries, they could not succeed due to certain reasons/hurdles of security and changes in SRO 575 on June 5, 2006. Only Attock Refinery showed significant achievement and is expected to complete DHDS in April 2016 and isomerization by June 2016 but it could also not meet the deadline. Pakistan Refinery had completed the isomerization project and had requested further time to set up DHDS project up till December 2017.
The documents further disclose that according to the refineries, the up gradation projects were significantly capital intensive, requiring huge investment over Rs 200 billion. Considering this fact, ECC in its meeting on March 8, 2013 had allowed incentive for additional proposed 1.5 per cent deemed duty on HSD with effect from January 1, 2016 (by raising existing deemed duty 7.5 per cent to 9 per cent), with the condition to upgrade/modernise the refineries by installing DHDs by December 31, 2015.
It was also decided to open an escrow account by the refineries and deposit the available balance amount of their special reserve, accumulated up to June 2013 onward in the escrow account, to be operated jointly with the ministry of finance for utilisation on modernisation /up gradation of refineries.
The refineries, documents revealed, had undertaken the up gradation work prior to the opening of escrow account and spent the special reserve before transferring it to it and that they had requested for a waiver to transfer the special reserve amount to the escrow account as they had to make time bound payments to their international/local vendors/contractors without any default for a smooth up gradation process.
