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Tuesday April 16, 2024

Cnergyico eyes $1 billion refinery overhaul, negotiates to end Rs47.5 billion levy row

"Despite these past dues, company ensures regular payment of current levies collected for 2023 - 2024," company says

By Our Correspondent
February 24, 2024
This photo on April 1, 2023, shows a view of installations of an oil refinery.—AFP
This photo on April 1, 2023, shows a view of installations of an oil refinery.—AFP

KARACHI: Cnergyico Ltd. is seeking to resolve a long-standing dispute over unpaid Rs47.5 billion in petroleum levy (PL) on petroleum products and invest over $1 billion to upgrade its refinery under a new policy that aims to modernize the country's oil refining sector, the company said on Friday.

"Facing challenges due to approximately Rs60 billion in pending receivable claims from government-controlled entities — a situation currently under adjudication — as well as tough economic conditions, Cnergyico has not been able to provide upfront payments for a portion of the Petroleum Levy," Cnergyico said in a statement.

"Despite these past dues, the company ensures regular payment of current levies collected for 2023 - 2024."

It said that the Oil Refining Policy, based on the recommendations from the Special Assistant to the Prime Minister (SAPM) on Finance, offers a solution that not only facilitates the settlement of the petroleum levy but also encourages the upgrade of refineries.

"To address the petroleum levy issue, Cnergyico is actively working with the government to finalize the settlement deed in compliance with the policy, seeking a resolution that aligns with the national interest."

Following the introduction of the new policy, Cnergyico plans to modernize its oil refining complex near Hub, Balochistan, capable of processing up to 156,000 barrels per day (bpd) of crude oil.

The company seeks to invest over $1 billion for the upgrade, which is being encouraged under the policy. This investment will considerably increase Cnergyico's production of Euro-V compliant Motor-Gasoline (Petrol) and High-Speed Diesel, while reducing its Furnace Oil output.

The statement said Cnergyico's proposed settlement plan is in compliance with the policy which has an overriding effect over the existing relevant laws and the regulatory framework.

"This plan has garnered support from both the Petroleum Division and the Special Investment Facilitation Council (SIFC) Secretariat. This backing is crucial in overcoming investment hurdles in projects deemed of national importance and ensuring a swift resolution to the company's claims."

The policy's design includes mechanisms ensuring that incentives cannot be withdrawn until all government dues are cleared. To this end, Cnergyico has submitted post-dated cheques to cover liabilities and payments. Furthermore, the company commits to providing a bank guarantee of Rs1 billion alongside the upgrade agreement, offering the government additional safeguards and protections to ensure compliance with the commitments made under the Oil Refining Policy.

Moreover, there are other recourse measures available to the government under the Oil Refining Policy, which provide sufficient safeguards and protection against a company’s failure to comply with such commitments.

The Oil Refining Policy is anticipated to spur investments between $5 billion and $6 billion in existing refineries. This is expected to boost the oil refining industry's ability to produce high-value, environmentally friendly fuels, concurrently reducing the output of low-value furnace oil.

The industry’s petrol and diesel production are expected to increase by 99 percent and 47 percent, respectively, while furnace oil production could see a 78% decline. This shift will lessen Pakistan's reliance on importing costly fuels, leading to significant foreign exchange savings.