ISLAMABAD: The five local refineries are seeking inclusion of clauses about termination of agreement, and force majeure in the implementation agreements (IAs) with Ogra, but the regulator says these clauses are not mentioned in the notified brownfield or refineries upgradation policy.
However, the local five refineries under the notified brownfield refinery policy will have to separately ink three agreements each with Ogra before the deadline of November 15, 2023, and after that, each refinery will have to ensure financial close in two years’ time to enable itself to utilize the 25 percent incentives amount from the Escrow account for its upgradation.
After the upgrade in six years’ time, the existing refineries would produce Euro-V diesel of 31,288 tons per day against the existing production of diesel of Euro-III of 21,237 tons per day. Likewise, the existing refineries would produce 21,251 tons of Mogas (Petrol) of Euro-V per day against the existing volume of 10,702 tons of Euro-III petrol per day. The furnace oil production will plummet to just 3,414 tons per day from the existing 15,417 tons per day.
Under the brownfield refinery policy, the refineries shall be allowed 10% tariff protection/deemed duty applicable on motor gasoline and diesel’s ex-refinery price for 6 years. However, 2.5% of the deemed duty on diesel and 10% on motor gasoline (incremental incentive), shall be deposited by refineries in the Escrow Account maintained by Ogra and the respective refinery jointly in the National Bank of Pakistan for utilization of upgrade projects only.
The respective refinery and Ogra will open the requisite joint Escrow Account within three months after the notification of this policy. Until the opening of the said account, the incremental incentive shall be deposited in the IFEM.
However, right now the government functionaries and refineries representatives are in intensive talks for contracts that include i) a legally binding upgrade agreement with Ogra in 6 years’ time, ii) an agreement on an Escrow account between the refinery, National Bank of Pakistan and Ogra, and iii) agreement on Rs1 billion to be deposited as a guarantee by the refinery.
Officials involved in the talks said the refineries want the inclusion of clauses about termination of agreements, and force majeure in the agreements as they argue in case of non-obligation by the government for a long time, every refinery should be given the right to terminate the agreement and in case of any calamity such as Covid-19 epidemic hits the country and refinery can’t meet the upgradation deadline, then it should be given the right to seek force majeure. However, the Ogra authorities are saying that the clauses about termination of agreements and force majeure are not mentioned in the brownfield refinery policy.
They said that all the stakeholders are negotiating the agreements which will hopefully be finalized and inked by November 15, which is the deadline. However, after that, every refinery will have to come up with financial closure about their plans for upgradation.
Every refinery has its own financial health, so some refineries may take one year, some one and a half years, and some two-year time in coming up with their respective financial closures.
After the financial close, the refinery will be able to utilize the government monetary incentive from the Escrow account for upgrade purposes. The local five refineries will have to arrange 75 percent financing of $4.5 billion for their upgradation to ensure all fuels, as per Euro-V specification in 6 years’ time. However, the government would provide $1.5 billion (25 percent) of the total upgrade of refineries from the Escrow account. This is how the total cost to be incurred on the upgradation of five local refineries will stand at $6 billion, Each refinery will also have to come up with feasibility and FEED (Front-End Engineering Design) for their respective upgrade project and give timelines for the execution of the project.
