ISLAMABAD:
Oil refineries seem to be the chosen ones in the energy sector as the industry is allowed to collect a special tax called deemed duty from consumers and make Rs4 billion annually. Deemed duty is a tax the government lets refineries charge in order to protect them against volatility in international oil prices.
Along with this, the petroleum ministry also allows refineries to convert jet fuel and kerosene oil into high speed diesel (HSD) at a quality lower than international standards.
In 2000 and 2001, the government allowed two incentives to refineries. Firstly, flash point of high speed diesel was relaxed to 54 centigrade from 66 centigrade to blend jet fuel and kerosene oil against international set standard of 66 centigrade. Even, Pakistan State Oil does not import high speed diesel less than 66 centigrade flash point.
Secondly, the government allowed refineries to recover deemed duty as 10% on high speed diesel and 6% on kerosene oil with an objective of setting up de-sulhperisation plants that were never set up. Refineries have collected Rs80 billion on account of deemed duty on petroleum products since 2002 to December 2009, said an official.
Due to the recent increase in the price of oil products, refineries are pocketing Rs5.5 to Rs6 per litre from consumers through deemed duty. The relaxation in flash point allowed oil refineries blending of additional 0.5 million tons of jet fuel and kerosene and make an additional Rs4.0 billion every year, official added.
According to an official, flash point relaxation has changed market dynamics and resulted in a massive reduction of jet and kerosene production.
Before relaxation of flash point in high speed diesel, National Refinery Limited (NRL) and Pakistan Refinery Limited (PRL) were producing 420,000 tons and 361,000 tons of jet fuel and kerosene oil, respectively, in 1999 that declined to 277,000 tons and 257,000 tons, respectively, in 2000-01 after flash point relaxation was announced and kept on falling gradually.
A senior official of Pakistan State Oil (PSO) – an oil marketing company that purchases fuel from local refineries and international sources – said that the company was meeting jet fuel requirements of Karachi airport and armed forces through import of the product.
The ban on import of kerosene oil has created an acute shortage of it in far flung areas including the northern part of the country where alternate fuel like LPG is also not available. The army is also a consumer of kerosene oil at bordering areas but PSO is not able to supply them due to its scarcity, official said.
The government official who had dealt with issue of relaxing flash point to blend jet fuel and kerosene oil into high speed diesel said “we took the decision to increase availability of high speed diesel by blending more jet fuel and kerosene oil that were a surplus at that time”.
The government abolished deemed duty on kerosene and reduced it to 7.5% on high speed diesel in 2008 as oil prices surged to $147 per barrel. After this step, NRL and PRL further reduced production of jet fuel and kerosene oil that declined to 175,000 tons and 187,000 tons in 2009-10.
Attock Refinery Limited (ARL) was also producing 287,000 tons jet fuel and kerosene oil in year 2006-07 under deemed duty regime but it dropped to 221,000 tons in 2009-10. In 2011, total production of jet fuel and kerosene oil reduced to 0.95 million tons against 1.45 million tons in 2005-06.
Pakistan Refinery Limited Managing Director Aftab Husain said on behalf of refineries that kerosene oil was being blended to regrade the product. The demand of jet fuel and kerosene oil is less which is informed to the product review committee on a monthly basis, he said adding that production of jet fuel and kerosene oil has declined due to financial constraints from the circular debt issue and forced refineries to operate at 70% capacity.
ARL Managing Director Adil Khattak said that oil refineries were not involved in adulteration and alleged that petroleum dealers were involved in adulteration of oil.
Published in The Express Tribune, March 21st, 2012.
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