Oil storage, trade policy sparks controversy

OCAC warns of potential threat these guidelines pose to local refineries

ISLAMABAD:

Amidst protests from the oil industry, the government has officially released policy guidelines aimed at encouraging foreign suppliers to invest in the storage and trade of petroleum products, including crude oil. This move involves allowing foreign suppliers and their registered subsidiaries to maintain inventories of crude oil and petroleum products within their own Private Bonded Warehouses or Customs Public Bonded Warehouses throughout Pakistan.

The policy guidelines, recently notified by the federal government, have sparked controversy, with the Oil Companies Advisory Council (OCAC) expressing concerns about the potential threat these guidelines pose to local refineries. The OCAC warns that this could have significant economic repercussions not only within the oil industry but also for the broader economy.

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According to the newly unveiled policy, a foreign supplier or its registered subsidiary can store crude oil and petroleum products in bulk form within private or public bonded warehouses located anywhere in Pakistan. These products can be held pending sale to local purchasers or re-export to foreign countries.

Foreign suppliers have the option to establish their own registered business or operate through a subsidiary company registered in Pakistan, which must comply with Pakistani laws and regulations. Additionally, the subsidiary, referred to as “The Consignee,” can develop its dedicated storage infrastructure and utilise customs public bonded warehouse facilities for storing crude oil and petroleum products under the Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016.

The Customs Bonded Warehouse of the Consignee must be licensed by Customs after meeting the requirements for operating as a Public Bonded Warehouse for storing crude oil and petroleum products. Moreover, the Consignee must be registered with the Inland Revenue, Federal Board of Revenue (FBR), under the Sales Tax Act, 1990, as both an importer and exporter.

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One noteworthy aspect of the policy is that the Consignee is not required to file an Electronic Import Form (EIF) with their Goods Declaration (GD) for in-bonding (IB) when storing goods received under the scheme. Instead, they can directly sell the goods to licensed purchasers, such as refineries or oil marketing companies (OMCs), in either US Dollars or Pakistani Rupees against the opening of a Letter of Credit (LC) through scheduled banks.

However, for selling the bonded goods to local purchasers, the Consignee must file an EIF with their GD for ex-bonding (EB). This step is necessary to clear the bonded goods for custody transfer to local purchasers for subsequent home consumption, with all applicable duties and taxes paid by the Consignee on behalf of the purchasers. The policy also addresses pricing mechanisms for the sale of petroleum products within the country. It stipulates that the pricing mechanism approved by the government and the Oil and Gas Regulatory Authority (OGRA) shall be applicable.

Regarding sanctions, the policy asserts that no product falling under Appendix-A (Negative List) of the Import Policy Order can be supplied under this scheme. Moreover, the Consignee is required to provide a Certificate of Origin for the product and an undertaking to relevant regulators (FBR) confirming that neither sanctioned products are imported nor any sanctioned entities have supplied such products. Conditions related to specific products falling under Appendix-R (Restricted Items) of the Import Policy Order must also be fulfilled by the Consignee.

Since petroleum products procured under this scheme are primarily intended for local purchasers, the products must adhere to the specifications approved and notified by the government. Vessels transporting these products will only be allowed to discharge their cargo once the quality has been cleared by the Hydrocarbon Development Institute of Pakistan (HDIP).

The policy further outlines that OGRA will ensure that the allocation and lifting of petroleum products from refineries are not compromised by local purchasers. Additionally, products available through this arrangement will not be included in mandatory days’ coverage until they are purchased and transferred out of the Consignee’s Bonded Storage.

In addition to imports, the policy permits the re-export of crude oil and petroleum products received into the country for storage in Customs Public Bonded Warehouses. This can be done without requiring a Letter of Credit, advance payment, or Electronic Export Form.

Published in The Express Tribune, September 3^rd, 2023.

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