Oil refineries: ECC to audit accounts, increases duty on diesel

Body questions refineries for not upgrading plants despite collecting deemed duty.

ISLAMABAD:

The Economic Coordination Committee (ECC) has decided to initiate a probe into the affairs of oil refiners who pocketed over Rs200 billion in deemed duty but failed to upgrade their plants to produce Euro-2 standard fuel.

The ECC, which met here on Friday, also approved an increase in deemed duty to 9%, which will likely lead to a hike of Rs2 per litre in the price of high speed diesel.

The Express Tribune learnt from sources that the oil refiners came under fire for not setting up plants to produce Euro-2 compliant fuel despite receiving billions of rupees from consumers on account of deemed duty since 2002.



“Now, take back billions of rupees from the oil refineries which they have pocketed from consumers, while failing to set up plants to produce Euro-2 compliant diesel,” Information Minister Qamar Zaman Kaira was quoted by sources as saying in the meeting.

The cabinet body also decided that earnings on account of deemed duty will be recorded in the national exchequer, which will be released to the oil refineries after setting up of plants. The oil refineries will deposit the deemed duty earnings in special reserves, not directly into their accounts, which will be audited.

One of the participants of the meeting said that the information minister chastised the refineries over failing to set up plants by the deadline. Oil refineries were scheduled to set up plants in 2010 but the deadline was extended to July 2012. Later, it was further extended to July 2014.

Kaira said the accounts of the oil refineries should be audited to examine where they had spent the money. Planning Commission Deputy Chairman Dr Nadeemul Haque also joined hands with the information minister and said refineries had pocketed billions of rupees they collected from the consumers.



He suggested that earnings from deemed duty should be released to the refineries after they build the plants, and that no increase in the duty should be given.

Finance Minister Saleem H Mandviwalla also raised questions about the collection of deemed duty, saying an audit should be conducted of oil refineries. He asked the petroleum ministry to submit details of collection of deemed duty and its spending by the refineries.

Oil and Gas Regulatory Authority (Ogra) opposed the increase in duty and said the oil refineries should be bound to set up plants as per schedule. The regulator also questioned the claim made by the refineries that they will recover $1.2 billion from consumers after the hike in duty, saying actual recovery will be $2.5 billion as the effect of the raise had been calculated at current prices, which are subject to change.

Ogra said that oil refineries should set up plants to produce Euro-2 diesel and charge higher price instead of getting an increase in deemed duty.

A judicial commission formed by the Supreme Court had earlier recommended abolition of deemed duty being given to refineries which had failed to upgrade their plants. These refineries were scheduled to set up plants in 2012, but received an extension from the ECC until July 1, 2014. Currently, Pak Arab Refinery Company (Parco) is the country’s only refinery producing Euro-2 compliant diesel.

Published in The Express Tribune, March 9^th, 2013.

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