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Smooth fuel supplies tied to import infrastructure upgrade

April 28, 2022

KARACHI: The country’s oil import infrastructure needs immediate upgrades as 75 percent of the sourced fuel arrives at the low-handling-capacity ports that get easily congested on heavy-traffic days, delaying supplies, industry officials said on Wednesday.

“As economy expands and progresses, the demand of energy also follows the suit and this increased requirement can be met through public-private partnership at Port Qasim and Kemari projects around jetty capacity enhancements and pipeline connectivity between the two strategic ports,” said Oil Companies Advisory Council (OCAC) in a letter to Finance Minister Miftah Ismail.

The oil body also urged the finance minister to intervene and help resolve the issues regarding price differential claim (PDC) and differentiated turnover tax regime within the downstream sector.

The sector body pointed out that Rs10 billion of Rs291 billion PDC imposed during 2004-2008 remains outstanding to this day and resulted in a huge financial loss to industry.

“Rupee-dollar parity in 2004-2008 was around average of 65 and it is currently in excess of Rs180, which translates into an impact of Rs18 billion.

The OCAC suggested the government to either include non-disputed PDC claims in the upcoming budget for reimbursement to oil industry or initiate a discussion on the same for devising an amicable solution.

About tax regime on downstream industry, the OCAC pointed out that there was 0.5 percent turnover tax on refineries, while 0.75 of the same is applicable on marketing companies.

“The reason for this differentiation within one sector is not clear, especially since there was a time when both were similar at 0.5 percent,” the OCAC stated.

Oil body proposed the turnover tax be reduced to 0.5 percent in the upcoming budget 2022-23 as 0.75 percent was eroding in excess of 30 percent of the regulated margins, expected to reach 40 percent with weak rupee-dollar parity and high oil prices.

The OCAC noted this situation was not sustainable financially for oil marketing companies (OMCs) as the extremely thin margin did not allow any buffer against vitality in oil prices, thereby impacting supply chain security of the country.

Oil body said there were significant financial losses to the oil sector and sought the help of the finance minister to provide and secure Pakistan’s energy demand for growth.

Country’s oil sector is faced with the grave challenges of importing petroleum products to meet the domestic needs at a time when the global oil market is volatile with prices hovering at higher levels.

The government is struggling to stabilise the domestic oil prices by providing PDCs worth billions of rupees to the oil sector.

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