Ogra proposes solutions to refinery tax and upgrade issues

KARACHI: The Oil & Gas Regulatory Authority (Ogra) has proposed measures to address the recovery of operational losses faced by refineries due to the sales tax exemption on petroleum products. It has also recommended extending the deadline for signing upgrade agreements with refineries under the Brownfield Refinery Policy, 2023.

In a letter sent to the director-general (Oil) at the Petroleum Division on Tuesday, Ogra outlined issues surrounding the upgrade agreements. Refineries have been reluctant to sign these agreements following the sales tax exemption introduced in the current fiscal year’s finance bill.

Regarding the recovery mechanism for operational losses caused by the sales tax exemption, Ogra proposed that, with the approval of the Economic Coordination Committee (ECC) of the cabinet, refineries should submit detailed claims. These claims should include the total amount lodged with the Federal Board of Revenue (FBR), the amount reimbursed by the FBR, and any remaining unadjusted sales tax. The recovery period for claims reimbursed from the Inland Freight Equalisation Margin (IFEM) should be limited to FY 2024-25 as an interim measure.

Ogra added that the claims should be relevant to the refineries’ ongoing operational and project-related activities for FY 2024-25. It suggested that reimbursement could be made either as a lump sum or in staggered payments, depending on the impact on the IFEM.

The regulator noted that the deadline for refineries to sign upgrade agreements, which was set for October 22, 2024, has already passed. Refineries have expressed reservations about signing the agreements, citing unresolved issues, including sales tax disputes with the federal government. These issues have been discussed in meetings organised by the Petroleum Division with stakeholders.

Ogra further proposed that signing the upgrade agreement with Cnergyico Pakistan Limited (CPL) should only proceed after a deed of settlement is finalised with the federal government, as outlined in the policy.

It also recommended that the federal government extend the deadline for signing agreements under the Existing/Brownfield Refinery Policy, 2023, while addressing the concerns raised by refineries. Ogra urged the Petroleum Division to present the matter to relevant forums, including the Special Investment Facilitation Council (SIFC), for resolution.

Earlier this month, refineries submitted a joint letter to the government, presenting proposals to resolve disputes over the sales tax exemption on petroleum products. They warned that the ongoing dispute has stalled the signing of refinery agreements. According to the sector’s estimates, allowing refineries to recover costs retrospectively from July 2024, when the sales tax exemption took effect, would impact consumers by approximately Rs2.05 per litre over six months.