$6bn refinery upgrade: SIFC to work out new proposals as IMF rejects govt’s proposals

ISLAMABAD: Following the rejection of government proposals for $6 billion by the IMF, the Special Investment Facilitation Council (SIFC) has convened an emergency meeting tomorrow (Wednesday) to work out new proposals for the Fund’s nod so that the work on upgrade projects could be initiated to ensure environment-friendly petrol and diesel of Euro-V specification.

“Yes, the authorities in the Petroleum Division would discuss the new proposals which may escalate the cost of the upgrade projects,” senior officials of the Petroleum Division told The News.

The escalation in the cost will be borne by the petroleum products consumers. The refineries have already been accommodated with the increase in IFEM (inland freight equalization margin) by Rs1.87 per liter to cope with the Rs34 billion loss the refineries absorbed because of sales tax exemption — a budgetary measure taken by the FBR’s top mandarins in the Finance Bill for FY25.

The increase in IFEM by Rs1.87 per liter will help cope with the loss in 12 months. Now the crude prices in the international market have increased to $75 per barrel which may further escalate in the months to come because of Iran-Israel war. So, further increase in IFEM will be a gigantic task for the sitting regime.

Earlier, the IMF denied accepting the government’s proposals aimed at facilitating $6 billion in refinery upgrade projects, dealing a blow to efforts to produce cleaner Euro-V standard fuels.

The IMF’s rejection has effectively stalled the planned investments, leaving top officials — including Federal Petroleum Minister Ali Parvaiz Malik — deeply frustrated.

“In the Finance Bill for FY26, the government financial managers as per their promises have not resolved the issue of sales tax exemption on POL products – a measure introduced in the Finance Bill for FY25 that has made the upgrade projects extremely unviable,” he said.

The sales tax exemption measure earlier imposed by the Federal Board of Revenue (FBR) in the Finance Bill for FY25 resulted in a loss of Rs34 billion to the refineries and oil marketing companies in the outgoing fiscal.

The IMF rejected the government proposals including i) for the restoration of zero-rated status and ii) imposition of 10 percent sales tax on POL products and asked the government to come up with new proposals. This issue will be debated at length in the SIFC meeting.

In addition, the Petroleum Division (Sui Southern) will also submit a progress report for making JJVL LPG-NGL extraction plant which has been non-operational since June 2020.

If the JJVL plant becomes operational, then the government will get $150 million relief in shape of a saving in foreign exchange reserves per annum.

“So far, the closure of the JJVL has inflicted a mammoth loss of Rs94 billion on the country’s economy till January 2024 which has further escalated to over Rs125 billion, according to the SDPI report.

The SIFC will also take up the issue of white oil pipeline which will be laid down from Machhikay to Taru Jabba in two phases. The FWO wants to execute this project in dollar term transportation tariff with a 25 percent equity from SOCAR — the state-owned company of Azerbaijan. The issue of gas supply to the national steel company also known as Tawarqi Steel Mill will also be figured out.