New oil refining policy likely to attract $15b
PHOTO: FILE
An investment of $15 billion is expected to be poured into new and existing oil refineries for project upgrade and establishing a deep-conversion facility with refining capacity of 400,000 barrels per day (bpd).
The capital injection is likely in the wake of attractive incentives proposed by the government in the budget for fiscal year 2021-22.
The policy incentives will help the existing refineries to become financially sustainable and upgrade their plants, but they will only be eligible for the incentives if they commit to plant upgrade.
An investment of about $4-5 billion is expected to be made in project upgrade, which will enable the refineries to produce environment-friendly Euro-5 petrol and diesel.
“All incremental revenue due to policy incentives will go into a reserve account and can only be withdrawn for the purpose of upgrade,” said Pakistan Refinery Limited (PRL) Chief Executive Officer Zahid Mir while talking to The Express Tribune.
“The Oil and Gas Regulatory Authority (Ogra) will monitor project progress and in case of delay the incentives can be suspended.”
Under the incentives, the refineries would be able to run at full capacity where most of the fuel oil would be converted into petrol and diesel, which would ensure fuel supply across the country and slash imports, he said.
Mir emphasised that Pakistan needed only one new refinery of a capacity of 400,000 bpd, adding “this together with the existing refineries will be enough for the next 20-year requirement of the country.”
The new oil refining policy would attract an investment of $10-15 billion into a new deep-conversion refinery of about 400,000 bpd, he said.
The new refinery along with the upgrade of existing refineries would be able to replace all the current petrol and diesel imports into the country, Mir said.
Pak Arab Refinery (Parco), a joint venture of Pakistan and Abu Dhabi, is also working on setting up a new refinery. Saudi Arabia has also expressed its intention to set up a refinery in Pakistan.
A meeting on the draft Pakistan Oil Refining Policy 2021 was held at the Ministry of Finance on Tuesday. Federal Minister for Finance and Revenue Shaukat Tarin chaired the meeting. Federal minister for power, special assistant to prime minister (SAPM) on finance and revenue, SAPM on power, finance secretary, petroleum secretary, DG oil and representatives of oil refineries were present in the huddle.
On the occasion, Tarin decided that customs duty on motor spirit (petrol) and high-speed diesel (HSD) would be kept at 10% as already proposed in the Finance Bill 2021.
However, customs duty of 2.5% on crude oil will continue for one year only, ie 2021-22, thereafter it will go down to zero. Existing refineries will enjoy a 10-year income tax holiday on plant upgrade to produce fuel of Euro-V specifications.
It was decided in the meeting to remove the condition of deep conversion and 100,000bpd refining capacity for getting the incentives proposed in the new oil refining policy. The government will also approve a 20-year income tax holiday for the new deep-conversion refineries. Refineries had called for withdrawing the general sales tax (GST) on crude oil, but Tarin said that it would continue in order to fulfil an International Monetary Fund (IMF) loan condition.
However, they said that the government could consider collecting 50% GST at the import stage and the balance 50% on the recovery of products as suggested by the finance minister. Refinery executives voiced hope that the government would approve the proposal.
SAPM on Power Tabish Gauhar assured them that he would get it approved by the anomaly committee.
Byco Petroleum CEO Amir Abbassciy told The Express Tribune “the refinery policy will allow us to sustainably upgrade our refineries in order to meet international refining standards and meet the government mandate of being modernised, efficient and environmentally friendly refineries.” Currently, he said, a significant product of all refineries in Pakistan is furnace oil, which has seen its market shrink rapidly over the last few years.
Four years ago, furnace oil was the main feedstock for power plants, but now it has been replaced with LNG. “We have to determine a path to upgrade our refinery to do away with furnace oil, whose market has shrunk by more than 50%,” he said.
“Our upgrade-1 project plan includes evolving from a hydro-skimming to a deep-conversion refinery, and core units include the FCC (Fluidised Catalytic Cracking) and DHDS (Diesel Hydrotreater and Desulphurisation),” he said, adding that the FCC unit, the first-of-its-kind in Pakistan, “will allow us to convert furnace oil into more valuable gasoline and diesel, while the DHDS will significantly reduce the sulphur content in our diesel, making it more environmentally friendly”.
Published in The Express Tribune, June 24th, 2021.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.