Ogra told to review penalties for non-compliant Euro-II fuel

KARACHI: A government committee formed by the prime minister has recommended that the Oil and Gas Regulatory Authority (Ogra) and the Petroleum Division reassess penalties imposed on refineries for failing to comply with Euro-II fuel specifications, noting that current measures have proven ineffective.

The committee, headed by Petroleum Minister Ali Pervez Malik, was constituted to examine the low offtake from local refineries. In a recent meeting, it observed that although Euro-II fuel specifications were notified in 2017, most refineries still fail to comply. Instead of upgrading their facilities, they prefer to pay the penalties -- suggesting the fines are not punitive enough to incentivise improvement.

According to official documents available with The News, Minister of State for Finance Bilal Azhar Kiani questioned whether the status quo should be tolerated or if refineries should be pushed to enhance fuel quality in the short to medium term to mitigate environmental and public health risks -- while simultaneously addressing their sales tax exemption concerns.

The Ogra chairperson informed the meeting that letters had been issued to refineries requesting input on enhancing penalties for producing substandard fuel, and formal replies were awaited. However, in verbal discussions, refinery representatives cited financial and operational limitations as key reasons for their continued production of fuel below Euro-II standards. They warned that increasing penalties could threaten their economic viability.

Recognising the strategic importance of refineries in processing local crude and meeting national fuel demand, Ogra advised a phased, consultative approach. It proposed a five-year upgradation plan under the Refining Policy 2023, contingent on resolving long-standing issues such as the sales tax exemption. The authority stressed the need for a balanced strategy that aligns environmental objectives with economic realities.

Syed Mustafa Mahmud, chairperson of the National Assembly Standing Committee on Energy, raised concerns about the harmful health effects of additives like MMT and NMA. He advocated introducing an environmental cost per litre of fuel and called for greater public transparency. He criticised the inertia within the sector, arguing that even if fiscal hurdles were cleared, refineries might still avoid upgrades by citing the global shift towards electric vehicles and cleaner energy.

Mahmud proposed the import of high RON motor spirit (MS) for blending with locally produced lower RON fuel, as a preferable alternative to using harmful additives.

The cabinet secretary warned that increasing penalties without resolving core financial issues -- such as the exemption of sales tax on petroleum products -- could backfire and worsen the financial position of refineries. He noted that a symbolic increase in fines would likely fail to change behaviour and only entrench the current situation.

The meeting was further informed that the financial close of upgradation projects at two refineries remains stalled due to the unresolved sales tax exemption issue. A recommendation was made to allow blending of high RON MS to meet specifications and to set a firm five-year deadline for all refineries to upgrade, after which the production of sub-Euro-V fuels would be banned.