In a bid to encourage foreign investors to establish storage facilities in Pakistan, the government has eliminated the requirement for mandatory approval from regulators for oil industry players to re-export petroleum products. This move aims to streamline processes and create a more investor-friendly environment.
Sources told The Express Tribune that the matter was discussed in a recent meeting of the Economic Coordination Committee (ECC) of the cabinet, where the Special Assistant to the Prime Minister (SAPM) on Revenue raised the proposal of importing foreign supplier’s account through custom bonded storage facilities. As per the new policy, oil industry players will now need to inform the Oil and Gas Regulatory Authority (OGRA) 15 days prior to re-exporting the petroleum products, said the sources.
During the meeting, the SAPM on Revenue provided details of the existing bonded storages of Oil Marketing Companies (OMCs) across the country. He recommended that foreign suppliers should have the option to construct their own storage facilities or utilise existing bonded storage infrastructure for bonded warehouses anywhere in Pakistan. The SAPM argued that the mandatory requirement of OGRA approval for re-exporting products could discourage investors, and suggested its removal or replacement with a prior notice.
Furthermore, the SAPM proposed that foreign suppliers be given the choice to establish their own registered business through a Permanent Establishment (branch of a non-resident company) or operate through a subsidiary company incorporated in Pakistan. After a thorough discussion, it was decided to amend the proposed policy accordingly.
The Petroleum Division briefed the ECC that a summary regarding this matter was previously submitted on May 26, 2023, for its consideration. However, in its meeting on June 5, 2023, the ECC had reservations and observations about the proposed policy, particularly regarding the development of new dedicated storages by foreign suppliers and the mandatory permission from OGRA for the re-export of crude oil and petroleum products. The ECC deferred the summary and directed the Petroleum Division to hold consultations with the Federal Board of Revenue (FBR), OGRA, and other stakeholders to present viable recommendations for further consideration.
In response to the ECC’s direction, the Minister of State for Petroleum held a meeting on June 26, 2023, with the SAPM on Revenue and representatives from the Finance Division, FBR, OGRA, and Petroleum Division. The Chairman of OGRA presented details of storages for Motor Spirit (MS) and High-Speed Diesel (HSD) at Port Qasim and Keamari, along with their utilisation during high and normal demand months from 2021 to 2023. The analysis indicated that there is sufficient unutilised storage capacity available at ports.
A revised draft policy guideline on the import of foreign supplier’s account through custom bonded storage facilities was prepared and shared with the ECC.
The proposal from the Petroleum Division was subsequently considered and approved by the ECC.
However, the decision made by the federal government has faced strong opposition from existing players in the oil industry. The Oil Companies Advisory Council (OCAC) has expressed concerns about the approved policy, stating that imports on foreign suppliers’ accounts through customs bonded storages pose a significant threat to local refineries. This poses potential economic repercussions not only within the oil industry but also for the overall economy.
In a letter addressed to State Petroleum Minister Musadik Malik, OCAC Chairman Waqar Siddiqui highlighted the industry’s concerns. One of the major issues raised was the exposure to foreign payments, as the industry believes that the proposal does not lead to significant foreign exchange savings as anticipated.
According to the guidelines, remittances will not be allowed at the time of imports, but the outflow of forex from the country will still occur. Under current practices, all importers are required to transfer foreign exchange based on the terms of supply within a specified timeframe, for instance within 30 days from the Bill of Lading. Therefore, there will be no positive impact on the country’s forex reserves.
The OCAC also cautioned that existing importers already face extended waiting periods, particularly during the agricultural sowing season.
Published in The Express Tribune, July 4th, 2023.
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