Riding on new policy Pakistan’s refining capacity to register significant growth

Pakistan's refining capacity is projected to rise significantly allowing the country to sharply reduce its dependence on imports for petrol and other oil products.

The expectation comes on the back of a new oil refinery policy, which is under works and offers incentives for existing up-gradation projects and new refineries as well.

"We believe the new refinery policy will encourage existing refineries to utilize this opportunity by upgrading their capacity and deploying the latest technology, which will ultimately reduce the reliance on petroleum imports," said Abdul Azeem, director of research at Spectrum Securities, quoted S&P Global Platts.

Under the new refinery policy, which is currently awaiting approval all new deep conversion oil refinery projects of a minimum of 100,000 bpd refining capacity, to be set up anywhere in the country, that are approved by the Ministry of Energy (Petroleum Division) before December 31, 2021, shall be eligible for the following fiscal incentives: (i) twenty year income tax holiday from profits and gains as provided in Clause 126 of the Income Tax Ordinance at the time of effectiveness of this policy, from the date of commissioning of the project;(ii) exemption from customs duties, with holding taxes, or any other levies on import of any equipment to be installed, or material to be used in the refinery without any precondition for certification by Engineering Development Board ; (iii) exemption from general sales tax, or any other Ad Valorem tax on the import of equipment to be installed, or materials to be used in the refinery prior to commissioning, without any precondition for certification by Engineering Development Board;(iv) construction, operations and engineering services performed in Pakistan, whether by local firms or foreign firms operating in Pakistan, as well as procurement of any local materials shall remain subject to all applicable local taxes, whether provincial or federal; (v) temporary imports by contractors/sub-contractors of all machinery, vehicles, plant and equipment, other materials and spares in connection with setting up, operation, maintenance and repair, which are to be repatriated after completion of the works, shall be exempted from all customs duties, taxes, surcharges and levies on import, and shall be released by customs authority on provision of a bond by the importer, for the defined time period of use.

Currently, Pakistan's oil refining capacity is about 20 million tons per annum. About 60 percent country's requirements of diesel and 30 percent Motor Gasoline in met by local refineries. The rest is imported as refined products.

"Given the new plants being set up in the country, we expect the throughput of refining of petrol and diesel will increase over the years, which will eventually create a scenario for the decline in imports of refined gasoline products and eventually save billions of dollars for the country," said Yawar Uz Zaman, head of research at Pearl Securities, who expects Pakistan's refinery capacity to rise to 1.1 million b/d due to the new policy.

Meanwhile, imports of refined products will also come down saving the country $3-4 billion in foreign exchange reserves, says Shankar Talreja, research analyst at Topline Securities.

"We expect 150,000 to 200,000 b/d of new refinery [capacity] to be installed while existing refineries will undertake their upgrades to reduce quantum of furnace oil or fuel oil and produce environmentally compliant refined products," Shankar said.