No more guaranteed rate of return available for three oil refineries

ISLAMABAD: The Petroleum Division has decided to abolish in the revised proposed draft of Pakistan Refinery Policy 2021 the minimum 10 percent rate of return guaranteed for the National Refinery Limited (NRL), Pakistan Refinery Limited (PRL)and Attock Refinery Limited (ARL) allowing them to compete in the market through (the deemed duty) tariff protection formula.

PARCO and Byco will also be extended the same tariff protection regime with no product off-take and rate of return guarantee. More importantly, there will be no 10-year tax holiday for local refineries and the government contribution towards upgradation of local refineries will now stand at 30 percent in the form of tariff protection as against the contribution earlier proposed at 40 percent. However, 70 percent investment will be made by refineries for the purpose of further upgradation to ensure Euro-V petrol and diesel.

According to the summary titled tariff protection (deemed duty) for refineries prepared for CCOE to approve, the 30-percent government contribution for upgradation will be managed through the import duly of 10% Ad valorem on import of HSD and 5pc Ad valorem plus lpc surcharge on import of kerosene oil, light diesel oil and JP-4 is being proposed. However, excise duty on these products is being abolished and petroleum development levy is being reduced to minimize the impact of this measure on the retail prices.

The 50pc of the net profit after tax will be diverted to a special reserve account to offset against any future loss or make investment on expansion or upgradation of refinery.

The CCOE that met on September 13, 2021 approved the Pakistan Refinery Policy 2021 to the extent of establishment of new refineries in the country. The Petroleum Division was asked to present a workable plan for sustainability and upgradation of local refineries. The CCOE on September 13 also required further clarity on utilization of revenue streams arising out of tariff protection on off-setting losses instead of upgradation in the past.

The intent of the 2002 tariff protection policy was to provide a reasonable margin to refineries so that refineries could primarily operate their normal business while encouraging them to manage losses and upgrade refineries with the provision of a special reserve account.

Accordingly, refineries have run the operation of refineries on their own and also upgraded the same during 2002-2020. As per the summary, during 18 years, the refineries under refinery policy 2002 have got Rs237 billion in the head of deemed duty out of which the refineries utilized Rs191 billion for upgradation purposes and the remaining amount of Rs38 billion was used by them to offset their losses. The summary also highlighted the details of financial audit, conducted by refineries since inception through a reputed independent audit firm. The Auditor General of Pakistan Office also reviewed the details of the deduction/utilization of deemed duty for the period 2002-2018. In addition, ENAR Petrotech Services Ltd also carried out technical audit in 2016 on the direction of Petroleum Division in order to assess whether refineries have upgraded their plants by installing Naphtha Isomerization and Diesel Hydro-Desulphurization units.

The Pak Arab Refinery as per the summary, during 2002-2020, under refinery policy 2002 collected deemed duty of Rs76 billion out which Rs66 billion was used for isomerization and Diesel Hydro-Desulphurization units and capacity enhancement projects and the remaining amount of Rs10 billion was used to cover up its losses. Likewise, Attock Refinery Limited (ARL) got Rs47 billion, out of which Rs26 billion was spent on isomerization, DHD and pre-flash units. The remaining amount of Rs21 billion was consumed by ARL to offset its losses. National Refinery Limited (NRL) received Rs40 billion. Of it, NRL used Rs37 billion in the head of isomerization & DHD and capacity enhancement. Pakistan Refinery Limited (PRL) got Rs36 billion and it utilized Rs17 billion only for isomerization, crude storage and power generation plant. Byco also got Rs38 billion under the head of Deemed Duty in 18 years, but it spent the amount of Rs53 billion on installing the isomerization plant, reformer unit and setting up of SPM (single point mooring) facility. BYCO has spent more against the deemed duty of Rs38 billion by arranging funds on its own resources.