SIFC steps in to avert fuel crisis

The dispute between the Sindh government and the oil industry over the imposition of a cess has reached the Special Investment Facilitation Council (SIFC), which has stepped in to mediate and prevent a potential fuel shortage.

Sources told The Express Tribune the Sindh government released Pakistan State Oil's (PSO) oil cargo after the SIFC's intervention to avert an impending crisis.

"Following the SIFC's involvement, the Sindh government has allowed the oil industry to import cargoes until the end of October under the existing undertaking mechanism," the sources added. A Parco cargo has already arrived, while two others - belonging to PRL and NRL - are expected to land on October 23.

Oil industry officials explained that fuel prices are regulated by the federal government, which incorporates various taxes into the pricing mechanism. "The cess issue is essentially between the provincial and federal governments," one official said, adding that the industry had requested the federal government to include the Sindh Infrastructure Development Cess (SIDC) in oil prices, similar to the petroleum levy and other taxes passed on to consumers.

The Sindh cabinet had earlier directed the oil industry to provide annual bank guarantees worth Rs25 billion.

"How can the oil industry manage such guarantees - and what if the Sindh government decides to encash them against petroleum imports?" an industry representative questioned.

The Oil Companies Advisory Council (OCAC) - a body of the oil industry - had written a letter to the petroleum secretary to resolve the issue.

The sources said that the petroleum secretary had taken up the matter with the SIFC, which swung into action for the release of oil cargoes stuck at the Karachi port.

Sources said the SIFC is now working to resolve the cess dispute on a permanent basis. The oil industry has suggested that the government incorporate the cess into the oil pricing mechanism - a move that could lead to higher prices for consumers.

The governments of Sindh and Balochistan have imposed the Infrastructure Development Cess (IDC) on POL imports since 1994. The levy was challenged before the Sindh High Court (SHC), which initially granted a stay but later upheld the chargeability of IDC in 2021.

The industry appealed the Supreme Court, which suspended the SHC order but directed that the true protection of sub judice bank guarantees continue.

In July 2023, the Sindh Sales Tax & Excise Department again restored the requirement of submitting a local taxes and levies declaration before the Goods Declaration.

Following interventions by the Petroleum Division and OGRA, an interim arrangement was reached, allowing submission of an undertaking instead of bank guarantees.

The imposition of SIDC poses severe financial and operational risks to the downstream industry. Based on estimated cargo movements - worth billions of rupees per cargo - a single 40,000 MT vessel costs about USD 40 million.

The oil industry says that it is unsustainable given the industry's limited credit lines, vested submission of bank guarantees of IDC in banks and/or PRAs' duties to regulated cost, which will have severe implications for clearance & lift of price of petroleum products to the government.

The oil industry had urged immediate intervention to direct FBR and Customs to allow clearance of all POL cargoes without bank guarantees in the national interest and to safeguard national supply chain continuity. It said that the situation requires a policy intervention from the federation in the pricing of petroleum products and establishing exemption of petroleum products from IDC/SDC through proper rules.