The Economic Coordination Committee (ECC) has withdrawn its multi-million dollar bailout package for oil refineries that was meant for them to deposit the ‘extra earnings’ in an Escrow account and then use the proceeds to upgrade their plants to produce higher quality fuel.
The package, approved by the Pakistan Peoples Party (PPP) government towards the end of its tenure, was meant to allow oil refineries collect around $1.5 billion from consumers and use the proceeds to produce Euro-II fuel.
Irked by the low quality of fuel, the government had imposed 7.5% duty on sale of diesel and directed that the proceeds be deposited in a special account to be utilised by refineries to upgrade their plants. However, despite the passage of three years, money has not been deposited in the Escrow account.
The PPP also stated that the duty would be increased to 9% if oil refineries managed to upgrade their plants by December 31, 2015. It also bound the refineries to deposit money in the Escrow account.
However, refineries have failed to live up to the conditions, forcing the incumbent government to move a summary to the finance ministry, Planning Commission and the Oil and Gas Regulatory Authority (Ogra), seeking comments over its proposal of withdrawing the increase in deemed duty on diesel from 7.5 to 9%. Oil refineries had also placed a request for waiver in opening the Escrow account and the petroleum ministry had agreed with this plan.
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 now the ECC has extended it by another year. The ECC has also kept the deemed duty unchanged at 7.5%.
Following the fourth extension, consumers should be ready to continue consuming low-grade diesel for the next one year up to December 2016.
The petroleum ministry had sought time up to June 2017 from January 1, 2016 for completing the isomerisation and diesel hydro de-sulphurisation projects in order to enhance petroleum production and produce environmentally friendly Euro-II fuel, respectively.
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.
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.
The ECC, which met on Monday, also approved the Ministry of Water and Power’s proposal for providing government’s guarantee for opening a second letter of credit for setting up two 1,000-1,200MW power projects at Haveli Bahadur Shah, Jhang district and Balloki, Kasur district.
The ECC, on a proposal of the Federal Board of Revenue, accorded approval to the extension in the period for reduced withholding tax of 0.4% on banking transactions by non-filers till April 30, 2016.
On a proposal of Ministry of Petroleum, the ECC approved allocation of 100 mmcfd of gas to the Khyber-Pakhtunkhwa government for use in power generation.
Published in The Express Tribune, April 5th, 2016.
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