The Cabinet Committee on Energy (CCOE) on Tuesday approved the new refinery policy where it enhanced the limit on withdrawing money from an escrow account from 25% to 27.5%.
Pakistan Refinery Limited (PRL) has already signed an agreement with the Oil and Gas Regulatory Authority (Ogra) under the new refinery policy. However, other refineries refused to strike any deal with the regulator and raised several issues like the continuation of 7.5% deemed duty collection on diesel sales after upgrading their plants.
Other issues of concern for the refineries included the tax exemption on incremental capital expenditure (capex) to be deposited in the escrow account, project time and cost overruns. At a meeting held on Tuesday, the CCOE raised the cap on the withdrawal of money from the escrow account from 25% to 27.5%. This money will be spent on upgrading the refineries.
Under the new policy, the refineries expect Pakistan to become self-reliant in the production of diesel. The oil industry emphasises that the energy sector is the backbone of any economy but unfortunately the core challenges being faced in the realm of economy stem from ill-planning and mismanagement.
“It is, therefore, good to know that the oil refineries policy for upgrading the existing/brownfield refineries with some amendments has been approved by the Cabinet Committee on Energy,” it said. The industry pointed out that the badly needed policy took more than four years in the making and final approval was delayed on one pretext or the other. The policy was finally notified on August 17, 2023 but it had some anomalies, which were not acceptable to the refineries. After intense and prolonged consultation among the government, refineries, independent financial and legal advisory firms, the policy was appropriately amended and approved by the CCOE in a meeting chaired by Minister of Energy Muhammad Ali on Tuesday.
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“The last step needed now is its approval and ratification by the cabinet, which we hope will be done in the next few days,” it said. The policy will enable oil refineries to undertake major upgrade projects to not only comply with environmentally friendly Euro V specifications but also increase the production of deficit products such as petrol and diesel by 99% and 47%, respectively.
As part of the policy, they will reduce the output of furnace oil by 78% as its demand has gone down drastically in recent years, which often results in storage constraints forcing refineries to reduce capacity utilisation.
Oil Companies Advisory Council (OCAC) Chairman and Attock Refinery Limited CEO M Adil Khattak, in a statement, said that refineries’ upgrade projects would bring an investment of $5 billion to $6 billion and will not only result in cleaner, environmentally friendly fuels but also ensure major savings of foreign exchange.
Published in The Express Tribune, February 7th, 2024.
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