$6bn investment for upgrade: Refineries seek end to smuggled POL products from Iran

ISLAMABAD: In a new development, the country’s local refineries that are all set to gear up to start $5-6 billion investment in 6 years’ time for their upgradation projects after signing Implementation Agreements (AIs) with Ogra have raised a red flag over the perpetual influx of smuggled petroleum products from Iran.

The refineries have linked their investment for upgradation projects to ensure Euro-V diesel and petrol with total end to the influx of smuggled POL products from Iran on sustainable basis. Otherwise, the refineries’ expansion and upgradation would be no more economically viable as the investment is being planned on optimum capacity utilisation. The smuggling of petroleum products, if continues, would seriously question the viability of these projects, forcing prospective investors to review their decisions.

Oil Marketing Companies (OMCs) like PSO, Shell and others are also facing low consumption of their imported POL products as the masses are widely using smuggled products from Iran. This is how the oil industry is braving a huge loss of $35.6 million a month, including damage in revenue to the government.

This is the gist of the letter written by OCAC (Oil Companies Advisory Council) on April 9 to SIFC (Special Investment Facilitation Council), top sources in the SIFC Secretariat told The News.

The OCAC earlier highlighted this issue in a letter to secretary petroleum on March 25, but since then no result-oriented actions have taken against the smuggling of POL products from Iran knowing the fact that the oil industry continues to lose business to illicit trade. Simultaneously, the government continues to lose revenue from petroleum levy, customs duty, corporate tax and super tax.

In the letter written on April 7, the OCAC drew the attention of SIFC to a serious threat to the opportunity of huge investment in the country due to the staggering influx of smuggled petroleum products from Iran.

Besides causing billions of rupees revenue loss to the government and forcing local refineries to operate at unviable lower throughputs, this menace of unabated smuggling has now reached an extent that it may jeopardize opportunity of the forthcoming huge investment in refineries expansion upgradation projects under the Oil Refining Policy for Upgradation of Brownfield Refineries, 2023 (As amended in February 2024).

Attock Refinery Ltd, National Refinery Ltd and Pakistan Refinery Ltd have already given consent to sign the upgradation agreements with Ogra envisioning an investment of $3 billion. PARCO and Cnergyico are also likely to join after getting board approval and settlement of government levies, respectively, taking the total investment to $5-6 billion.

The letter pointed out that the projects are based on optimum capacity utilisation of refineries. The smuggling of petroleum products, if continues, would seriously question the viability of these projects, forcing prospective investors to review their decisions.

The Refining Policy, which took four years in the making, with its final approval in February 2024, has presented a golden opportunity not only to bring in huge investment but also substantially increase production of deficit products and meet environment-friendly Euro-V specifications.

It would, therefore, be most unfortunate if the planned upgradation projects are delayed or abandoned due to continued illicit activity, which is already bleeding the economy, and has disrupted the entire supply chain of petroleum products, adversely affecting the refinery health, White Oil Pipeline operations and the profitability of Oil Marketing Companies and dealers. The letter also mentioned that this issue has been taken up at various forums but unfortunately, no concerted effort has been undertaken to stop this menace. The OCAC also wrote a letter to SIFC as the one-window investment facilitation institution for unwavering support to aggressively combat and dismantle the smuggling networks, reclaim control of the market and restore the momentum of struggling oil industry. It said failure to promptly address this issue will have catastrophic consequences for the energy security and economic stability of the country.