Fear of criticism: ECC scraps plan to deregulate oil freight margin

Allows Byco to charge 15 paisa as crude transport cost from consumers.

ISLAMABAD:

The Economic Coordination Committee (ECC) of the cabinet has scrapped a plan to deregulate inland freight equalisation margin on petroleum products, meaning oil prices will stay uniform across the country.

According to sources, the ECC in its meeting held on Friday was asked to either deregulate freight margin on petroleum products or allow Byco Oil to charge 15 paisa per litre as crude transportation charges to recover the operational cost of Single Point Mooring from consumers.

Rejecting the deregulation of freight margin, ECC members argued that the move would lead to varying oil prices in the country, which would spark criticism from political parties.

However, the ECC gave the go-ahead to recovery of 15 paisa per litre as transportation charges only from the consumers, who would be paying an estimated Rs150 million per annum to Byco for taking delivery of crude oil through a 15km pipeline, sources said.

The ECC gave the approval despite opposition from the finance ministry and Federal Board of Revenue (FBR). The ministry argued that Byco was its defaulter as it had not deposited petroleum levy collected on sales of oil products. Therefore, it should not be allowed to impose transportation charges on consumers.



Finance secretary, supported by FBR chairman, asked the ECC to defer the matter until next meeting.

“The approval of transportation cost is going to open a Pandora’s Box as no other refinery depending on imported crude, except for Pak Arab Refinery (Parco), is enjoying this facility,” an official commented.

Parco is getting this facility because of being in the middle of the country where crude oil reaches through an 875km pipeline.

Sources said Attock Refinery Limited was also collecting crude transportation cost because it relied on domestic crude and had to get supplies from different fields.

Pakistan Refinery Limited and National Refinery Limited are processing imported crude and have pipelines spread over 20 km. “These refineries will also come up with a demand to allow collection of transportation charges from consumers,” the official said.

The Oil and Gas Regulatory Authority (Ogra) also opposed the transportation charges, stressing that commercial business should be fair and transparent. It argued that there should be no subsidy for a specific refinery and consumers should not be overburdened.

The ECC, in its meeting in April last year, had already granted seven and a half years of tax holiday to Byco despite its failure to start the refinery by the stipulated time of end-2011. Byco had sought a 20-year tax holiday.

The ECC also gave one-year extension, allowing Byco to complete the refinery by the end of 2012.

The management of Byco contended that it would receive imported crude oil at the Single Point Mooring installed 15 km into the sea along the coast of Balochistan, therefore, it would not be causing any additional burden on the exchequer.

Initially, Byco Petroleum Pakistan, formerly Bosicor Pakistan, had set up an oil refinery with a capacity of 35,000 barrels per day at Hub, Balochistan in 2004. Recently, Byco Oil Pakistan completed another refinery of 120,000 barrels per day, which is close to the earlier refinery at Hub.

Published in The Express Tribune, February 23^rd, 2013.

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