Restoration of import duty concessions on energy equipment sought

KARACHI: The Oil Companies Advisory Council (OCAC) on Wednesday asked the government to restore tax concessions on the import of equipment for the oil and gas sector.

The tax concessions, granted through SRO 575(I)/2006 on import duties of machinery, equipment and spares meant for initial installation, balancing, modernisation, replacement or expansion of energy sector projects, were withdrawn in the Finance Act 2014/15.

“We intend to take up this matter at the highest level because the withdrawal of the incentives has adversely impacted the expansion and up-gradation plans of the industry,” an OCAC official said.

The official said the withdrawal of the said order prevented the industry from availing concessionary rates of duties and taxes for custom clearance on import of plant and machinery.

“The arbitrary withdrawal of the incentive, while projects were ready to be commissioned, is not fair,” the OCAC said.

On the delay in local refineries’ diesel hydrodesulphurization (DHDS) projects for the production of Euro II diesel, the OCAC said the refineries had based their project economics on the tax incentives and the withdrawal of the order disturbed the entire plan.

“Significant financial challenges faced by the global refining business also translated into challenges for the local refineries, adversely impacting their margins and capacity to finance such capital intensive projects,” the official said. “The DHDS project is primarily an environment-related project and therefore does not have the required payback capacity, making the task of achieving financial close an uphill and onerous one.”

The project completion fell behind the target date of December 2015 because of various factors, affecting the refineries, which are targeting to achieve the ministry of petroleum’s directives to produce Euro II premium motor gasoline and high speed diesel.

The OCAC official said the condition to obtain a certification from the Engineering Development Board (EDB) is a serious hurdle. The EDB certifies that the imported plant is not locally manufactured.

The EDB lacks the required resources and capacity to perform the certification function, the official added. Moreover, unexpected constraints in inland transportation of plant and equipment from Karachi to upcountry, such as blockage of roads due to political sit-ins and abnormal rains during the critical construction period also hampered the project’s completion.