The Cabinet Committee on Energy (CCOE) has decided to consult the energy-rich United Arab Emirates (UAE) for a planned investment of $1.3 billion in Pak Arab Refinery Limited (Parco), where a hydrocracker unit will be installed to convert furnace oil into petrol and diesel.
In a meeting of the CCOE held recently, Pakistan’s economic managers emphasised the need for sending a delegation to the UAE for consultation.
It was also realised that extension in deadline may be granted to refineries for signing agreements for upgrading plants under the new refinery policy.
In the meantime, the meeting was told, three refineries namely Attock Refinery Limited, National Refinery Limited and Pakistan Refinery Limited could sign such agreements as they were already prepared for that. Following this, a delegation should leave for a trip for the Gulf Arab nation of the UAE for deliberations.
Separately, Parco was in the process of updating its feasibility study after which the company’s board of directors would take a decision on the planned plant upgrade. These activities may take five to six months.
Similarly, a settlement agreement between Cnergyico PK and the government of Pakistan was being negotiated for payment of the outstanding petroleum levy.
Parco is a joint venture between the government of Pakistan and the UAE and has been running at maximum capacity, especially over the last few months, even though there was cross-border smuggling of diesel into Pakistan.
The government has timely addressed the menace of smuggling that resulted in an increase in demand for petroleum products.
Parco accounts for almost 50% of Pakistan’s operating capacity and it is extremely beneficial for the economy when it runs at maximum capacity, saving foreign exchange.
There is a lot of support from the energy ministry and the Special Investment Facilitation Council (SIFC) and Parco too is committed to functioning at full capacity.
Industry officials say it appears that demand for petroleum products is picking up steadily along with continuous improvement in economic indicators.
However, the recent budget announcement has sparked concerns in the oil refining industry. The government has offered sales tax exemption by replacing the earlier zero-rating status.
If the issue was not addressed swiftly, the refineries feared, it would negatively impact their business and plant upgrade projects.
The Petroleum Division briefed the CCOE that the committee had considered its summary on January 25, 2024 while the federal cabinet ratified the CCOE decision on February 15, 2024.
Accordingly, the amended “Pakistan Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023” was notified for implementation by the Oil and Gas Regulatory Authority (Ogra) and the refineries.
The policy envisages upgrading the existing refineries for production of environmentally friendly Euro-V fuels and reducing furnace oil output.
To achieve the objective, the policy provides the incentive of incremental duty of 2.5% on high-speed diesel (HSD), in addition to the current 7.5% duty, and 10% on motor spirit (petrol) in the form of deemed duty for seven years.
The incremental duty will be deposited in an escrow account maintained by Ogra with the respective refinery to meet up to 27.5% of project upgrade cost.
Ogra will allow the withdrawal of funds from the escrow account by the respective refinery, post-financial close of upgrade projects and against the expenditure made for each milestone.
To avail themselves of the incremental duty incentive, the refineries are required to execute plant upgrade agreements, open an escrow account and provide a Rs1 billion bank guarantee to Ogra within 60 days of the policy notification, ie, by April 22, 2024.
Clause 6.1.3.5 of the policy provides deemed duty on HSD shall be reduced from 7.5% to 5% for refineries that do not sign the upgrade agreement within the deadline of 60 days.
The Petroleum Division proposed that the deadline for signing the upgrade agreement and other associated deadlines may be extended by six months with effect from April 22, 2024.
The CCOE reviewed a summary titled “Pakistan Oil Refining Policy for Up-gradation of Existing/Brownfield Refineries 2023 – Extension of Deadline for Signing Upgrade Agreements” and approved the proposal.
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