Wednesday June 12, 2024

Draft for local refineries’ upgrade finalised

The government has finalised the draft of the refining policy for upgradation of local refineries

By Khalid Mustafa
December 13, 2022
Draft for local refineries’ upgrade finalised. The News/File
Draft for local refineries’ upgrade finalised. The News/File

ISLAMABAD: The government has finalised the draft of the refining policy for upgradation of local refineries under which a protective tariff of 10 per cent each on petrol and diesel would be extended to the existing refineries in the shape of IEFM (inland equalisation freight margin) for six years, senior officials involved in fine-tuning of the draft confided to The News.

“The amount to be collected under the head of protection duty would be deposited in the ESCROW account, to be opened in the National Bank of Pakistan. “The amount will cater to 25-30 per cent of upgradation cost to be incurred by the refineries. This means that refineries would arrange themselves the finances of 70-75 per cent required for their upgradation in six years.”

“The draft of the refining policy that deals with the upgradation of local refineries will soon be sent to the ECC for approval,” the officials said. The estimates, the official said, are that the upgradation cost of the refineries would hover at $4-5 billion. However, the impact of protection duty will be at Rs2.50 per litre each on motor spirit (MS) and diesel the end-consumers would pay.

The draft of the refining policy has two parts; one for upgradation of local refineries, and another one for the brand new refineries. “We have delinked part one of the draft from the other one as the part that deals with brand new refineries is yet to be finalised.”

As far as the draft for new refineries is concerned, it will be finalised once the technical and financial model talks with the Kingdom of Saudi Arabia (KSA) end with a positive result. “Saudi Aramco is seeking 7.5 per cent deemed duty for 25 years and 20 years tax holiday for a mega new refinery of a capacity to refine 350,000-400,000 barrels of crude per day. And the demands if accommodated would have a serious revenue impact.” The authorities in Pakistan are in touch with KSA experts to find out a win-win situation. “Once it is settled, the draft for new refineries would also be finalised and approved.

However, under the upgradation plan, the refineries will achieve the fuel of Euro-5 specifications in the country in 6 years’ time. However, Pakistan Refinery Limited (PRL), apart from getting MS and diesel with Euro 5 specifications would also enhance its capacity to refine the crude to 100,000 barrels per day from the existing 50,000 BPD.

According to the draft, the Oil and Gas Regulatory Authority (OGRA) will monitor project progress to ensure that the proceeds are used only for upgradation and refineries will provide a bank guarantee worth Rs500 million till the start of commercial operations of the projects with regard to upgradation. And there will be no dividend payments and adjustment of losses permissible from the Special Reserve Account. So much so, there will be no import duties and sales tax on imports of crude oil from July 1, 2022 being the main raw material of refineries.

Interestingly the refineries under refinery policy 2002 have managed to get hold of Rs237 billion in the last 18 years till 2018 under the head of deemed duty out of which the refineries utilised Rs191 billion for upgradation purposes and the remaining amount of Rs38 billion was used by them to offset their losses.

The Auditor General for Pakistan Office also reviewed the details of the deduction/ utilisation of deemed duty for the period 2002-2018. In addition, ENAR Petrotech Services Ltd also carried out a technical audit in 2016 on the direction of the Petroleum Division in order to assess whether refineries have upgraded their plants by installing Naphtha Isomerization and Diesel Hydro-Desulphurization units.

The Pak Arab Refinery, during 2002-2020, under refinery policy 2002 collected deemed duty of Rs76 billion out of which, Rs66 billion was used for isomerization and Diesel Hydro-Desulphurization units and capacity enhancement projects and the remaining amount of Rs10 billion was used to cover up its losses. Likewise, Attock Refinery Limited (ARL) got Rs47 billion, out of which Rs26 billion was spent on isomerization, DHD and pre-flash units. The remaining amount of Rs21 billion was consumed by ARL to offset its losses. National Refinery Limited (NRL) received Rs40 billion. Of it, the NRL used Rs37 billion in the head of isomerization & DHD and capacity enhancement. Pakistan Refinery Limited (PRL) got Rs36 billion and it utilised Rs17 billion only for isomerization, crude storage, and power generation plant. Byco that has renamed as Cnergyico Pk Limited also got Rs38 billion under the head of Deemed Duty in 18 years, but it spent the amount of Rs53 billion on installing the isomerization plant, reformer unit and setting up of SPM (single point mooring) facility. BYCO (Cnergyico Pk Limited) spent more against the deemed duty of Rs38 billion by arranging funds on its own resources.