ISLAMABAD: The Cabinet Committee on Energy (CCOE) that met here on Friday with Federal Minister for Planning and Special Initiatives has delayed the approval of the much-touted Pakistan Oil Refinery Policy 2021, asking the top mandarins of the Petroleum Division to come up in the next meeting with clear modalities on how to disburse the funds to be acquired through 10 percent tariff protection for six years, to the existing refineries for their upgradation projects, a senior official who attended the meeting told The News.
In the meeting, it was discussed as to whether the funds to be acquired through 10 percent tariff protection should either be released to the existing five refineries during the upgradation process or prior to initiating the projects for upgradation purposes or extended once the upgradation gets completed. In the meeting, the Petroleum Division has also been asked to come up with the impact of the deemed duty the existing refineries attained in the past from consumers.
Under the policy, 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 kind of motor or engine, effective from January 1, 2022 to December 31, 2027. However, the CCOE has agreed with the refinery policy draft by 95 percent, but asked the Petroleum Division to come up with a plan on what kind of modalities with checks and balances to be adopted for releasing the funds to refineries, keeping in view the funds that will be released would not be used by refineries as equity for borrowing loans to be used for upgradation.
Federal Minister for Maritime Affairs Ali Zaidi pointed out that one refinery has installed a power house of 7.5 MW with the amount collected under deemed duty and asked how it can be linked with upgradation despite the fact deemed duty was meant to be used for upgradation. He also raised the point saying that as far as establishing the facility of Single Point Mooring was concerned, it purely comes in the jurisdiction of the Maritime Affairs Ministry not the Petroleum Division. He came up with his reservation to this effect in the meeting and vowed to submit his written response on the SPM issue and overall refinery policy till the next CCOE meeting.
When contacted, Secretary Petroleum Division Dr Arshad Mehmood said the CCOE has almost cleared the oil refinery policy and asked PD to do work on quantitative challenges about the transparent modalities for releasing the funds to refineries. He said that upfront payment was neither possible nor the funds payment after upgradation was done. “However, for payment of funds to the refineries, we will work for modalities to be adopted during the upgradation process till the next CCOE meeting,” he said.
He said that in the proposed oil refinery policy draft, the incentives have been worked out for new refineries for investment of $12-13 billion and existing refineries for investment of 4.2 billion dollars. The refineries will come up with 25 to 30 percent with their investment.
“We will work out different scenarios for diversion of funds to existing five refineries to be acquired through 10 percent tariff protection to be plied for six years. We will make sure that the funds to be given to refineries are not used as equity by refineries for arranging loans and investment to be used for upgradation to ensure the availability Euro-V fuel in the country.”
A joint international consultant will be hired for bankable feasibility and to monitor every invoice from the Special Reserves Account to be made for the funds. He explained that a "Special Reserve Account" for upgradation or modernization will be maintained by each refinery in a separate bank account to be opened in the National Bank of Pakistan. Any incremental revenue (net of taxes) earned by the refineries based on the revised tariff structure (over and above the existing pricing mechanism for refineries), will be transferred to the Special Reserve Bank Account and will appear separately in the company's books of accounts, which shall be exclusively utilized for upgradation/modernization projects and will not be utilized for distribution of dividends or adjustment of losses or any other general corporate purposes of the existing refineries.
About the impact and usage of deemed duty by the refineries, the secretary said the Petroleum Division has with it all audited data on usage of deemed duty. He said that refineries have used the deemed duty for upgradation of their installments and enabled them to produce the Euro-2 fuel. He said deemed duty after 2008 has been reduced to 7.5 percent on diesel only, which was earlier imposed on four products and the amount collected in the head of deemed duty has been utilitised on some improvements with regard to upgradation.
For an existing refinery to be eligible for the fiscal incentives provided in this policy for upgradation, modernization, it must commit to upgrade no later than December 31, 2021 and provide an undertaking to the Petroleum Division. The undertaking, among other things, shall include the proposed timeline, potential configuration or units, the tentative product slate after upgradation (ensuring production of Euro-V Mogas and Diesel), the size, as well as all other relevant information required by the Petroleum Division to ensure compliance. Upon receipt of this undertaking, the Petroleum Division will provide a waiver for the refinery to continue marketing its products, until the agreed completion date of the upgradation (not later than December 31, 2026), from the fuel specifications notified by the Petroleum Division. Refineries that do not provide such an undertaking, and do not have a waiver, shall not be allowed to sell their products in Pakistan if not meeting the notified fuels specifications, after June 30, 2022.
The Petroleum Division presented an update to the CCoE on Pakistan Stream Gas Pipeline Project. The update included details of Head of Shareholders Agreement Terms, Funding Arrangements, Completion of Technical Studies and Regulatory Approvals. The CCoE directed the Petroleum Division to ensure timely completion of various actions so that delays are avoided.
The CCoE approved the proposal of the Power Division for eliminating the need for generation licenses for small-scale RE-based systems (up to 25 kW) for net metering. The measure will greatly facilitate consumers who wish to install small-scale solar systems for their homes and businesses and avail the facility of net metering.
The Power Division briefed the committee on issues hampering the progress of transmission line providing interconnection to 660 MW LEPCL Power Plant. The committee was informed that all the technical issues had been examined and resolved. The committee noted that there were no restraining orders from any legal/regulatory forum regarding the execution of the project. The committee, therefore, directed that the project activities be carried out without any delay.
The Power Division also presented the circular debt report from July 2020 to June 2021. The committee noted that the circular debt build-up had substantially reduced in comparison to the previous year. The committee appreciated the improvement in the recoveries and directed the Power Division to continue with its efforts for reduction of circular debt.