Cabinet body set to okay brownfield refinery policy with tweaks

ISLAMABAD: The Cabinet Committee on Energy (CCoE), scheduled to meet on Thursday, is all set to approve brownfield refinery policy for the up-gradation of local refineries with some material changes and inclusion of some vital clauses in the implementation agreements.

Under the material changes, the upgradation would now take place in seven years instead of six years. This means that the incentive package on behalf of the government would now be extended for seven years instead of six years.

More importantly, the incentive package amount on behalf of the government for the upgrade of existing refineries has been enhanced to 27.5 percent from 25 percent to compensate the refineries’ loss in incentives that is to be incurred because of 46 percent taxation on it.

The refineries were of the view that if 40 percent taxation is imposed, then the invective amount would be left just at 12-13 percent instead of 25 percent and at this meager amount, the refineries wouldn’t be able to upgrade themselves.

Apart from the increased incentive package to existing refineries, under the amended brownfield refinery policy, the continuation of the existing 7.5 percent deemed duty on HSD to local refineries has been ensured even after their upgrade.

In an earlier brownfield refinery policy for upgrade, the government had agreed to provide a 25 percent ($1.5 billion) amount as an incentive package and refineries would arrange 75 percent ($4.5 billion) financing on their own. Now, under the new scenario, the incentive package would be at 27.5 percent and refineries would arrange 72.5 percent. The total amount to be used for the upgrade of refineries would be $6 billion.

After the upgrade, the existing refineries would produce Euro-V diesel of 31,288 tonnes per day. Likewise, the existing refineries would produce 21,251 tonnes of Mogas (Petrol) of Euro-V per day. The furnace oil production will plummet to just 3,414 tonnes per day. 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 years’ time to come up with their respective financial closures.

When asked as to why the incentive package has been increased, senior officials said that the FBR had refused to give tax exemption on the amount under the incentive package saying it cannot give exemption as this regime is very much in the IMF discipline. So, the FBR will impose a corporate tax of 46 percent on incentives amount, which is why the government decided to increase the incentive package limit up to 27.5 percent so that the refineries could have reasonable fiscal space for the upgrade.