Petroleum ministry plans to give two more years for upgrading oil plants.
ISLAMABAD:
Consumers should be ready to continue consuming low-grade diesel for the next two years as the government is likely to give another two-year extension to the refineries for completing work on upgrading their plants following failure to meet the deadline.
According to officials aware of the development, the Ministry of Petroleum and Natural Resources has sent a summary to the Oil and Gas Regulatory Authority, the Ministry of Finance and the Planning Division, seeking comments on a proposal for giving two more years to the refineries to upgrade their plants and produce high-quality fuel.
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The petroleum ministry has planned to place the summary before the Economic Coordination Committee (ECC) for approval. The refineries have already spent billions of rupees on the project.
Before the end of its five-year term, the previous Pakistan Peoples Party-led government had extended the project timeframe up to December 31, 2015 and allowed an increase in deemed duty from 7.5% to 9% for its spending on plant upgrade.
The refineries have been collecting the duty from consumers since 2002 and have received over Rs200 billion. So far, they have got three extensions in the deadline and are now seeking a fourth one.
The petroleum ministry is seeking time up to December 31, 2017 for completing the isomerisation and diesel hydro de-sulphurisation projects in order to enhance petroleum production and produce environmentally friendly Euro-II fuel respectively.
It said no extension would be given and penalty clause would be applied to the refineries for producing low-grade high-speed diesel as approved by the ECC in its meeting on February 26, 2013.
It pointed out that the increase in deemed duty to 9% as an incentive for timely finishing work on the hydro de-sulphurisation project may be disallowed if the deadline was not met.
However, Attock Refinery Limited (ARL) has achieved significant progress and will complete work in the next six months. Still, it will fail to meet the current deadline.
According to an ECC decision taken on March 8, 2013, the refineries including National Refinery Limited, Pakistan Refinery Limited and ARL had to deposit their profits above 50% of the paid-up capital including the accumulated unutilised balance in a special reserve account.
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However, instead of shifting the amount in special reserves to an Escrow account, they spent the entire special reserves on upgrading the refineries.
According to the ECC’s decision, they were first required to deposit the reserves in the Escrow (third-party) account, which would be later received through the Ministry of Finance after verification and inspection of upgrading work by the petroleum ministry.
Giving the reason for the violation, the refineries argued they utilised the reserves due to financial constraints, the obligation to make timely payments to international and domestic suppliers and in order to achieve the target by December 31, 2015.
Apart from this, the refineries also failed to comply with two other directives of the ECC. According to these, they were required to give project-wise details where they had planned to invest a committed $2.4 billion to produce Euro-II diesel products over the next two years and arrange third-party certification of the money accumulated and utilised from the special reserves.
Published in The Express Tribune, December 23rd, 2015.
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