ISLAMABAD: The Cabinet Committee on Energy (CCoE) has approved amendments to Refineries Policy 2023 to resolve implementation issues of existing refineries/Brownfield Refineries, and enable them to undertake major upgradation projects.
The refineries had raised following issues, affecting viability of their upgrade projects: (i) 7.5% Deemed Customs Duty on HSD-clarification on continuation of the same, post upgradation; (ii) refineries had requested Tax Exemption on the incremental/CAPEX incentive to be deposited in the Escrow Account; (iii) Committed Output flexibility till FID; (iv) Legal/contractual issues in the Upgrade Agreement such as arbitration, Force Majeure, Termination and Relinquishment; (v) project time and cost overruns may be catered for in the policy and; (vi) Sales Tax @18% will be payable on imported and local equipment, however this could not be adjusted in the final product, as there is zero ST on petroleum products, hence the adjustment would take a long time.
On January 15, 2024 the following recommendations were agreed for consideration of CCOE: (i) to compensate the shortfall in incremental/CAPEX incentive due to taxation, the cap limit of withdrawal from escrow account may be enhanced from current 25% to 27.5% of the project cost and incremental incentive period may be increased from current 6 to 7 years; (ii) the prevailing 7.5% deemed duty on HSD for sustainability shall continue after the 7 years incentive period for 20 years or till deregulation, whichever is earlier; (iii) after the completion of six year period for upgradation, the waiver shall expire and the refineries producing products below Euro V specification will not be entitled to any deemed duty on MS and HSD ;(iv) Deemed duty on HSD shall be reduced from 7.5% to 5% for refineries which do not sign the Upgrade Agreement within one month of the date of notification of amendment in the Policy; and (v) it was felt that there was no forum available to resolve the issues faced by the refineries after signing the UA, therefore the following committee shall be constituted which shall address the issues/anomalies faced during implementation of this Policy (a) Secretary, Petroleum Division (Chairman); (b) Secretary, Finance Division and; (c) Chairman OGRA.
Based on legal opinion of M/s. Ajuris, and discussions with OGRA, the following proposals were made: (i) a new Section 6.1.6 may be added into the Policy, titled ‘Force Majeure’, stating that: “In addition to any applicable Cure Period, the timelines in this Policy shall be subject to any extensions as may be provided for on account of force majeure, by way of a Force Majeure Period.
Commenting on approval of amended Refineries Policy 2023, Adil Khattak Chairman, Oil Companies Advisory Council (OCAC) & Chief Executive Officer, Attock Refinery Limited (ARL) said that energy sector is the backbone of any economy, more so in case of Pakistan but unfortunately the core challenges the refineries face today in the realm of economy stem from ill planning and mismanagement of the energy sector.
He supported the Oil Refineries Policy measure for upgradation of existing/ Brownfield Refineries with some amendments as approved by Cabinet Committee on Energy, adding that this was badly needed policy that took more than four years in the making and final approval was delayed on one pretext or another.
The Policy was finally notified on August 17, 2023 but unfortunately had some anomalies which were not acceptable to the refineries.
After intense and prolonged consultation between the government, refineries, independent financial and legal advisory firms, the Policy was appropriately amended and approved by Cabinet Committee on Energy chaired by Minister of Energy Muhammad Ali.
The last step needed now is its approval and ratification by the Cabinet which it was hoped would be done in the next few days.
The Policy will enable the Oil Refineries to undertake major upgradation projects to not only comply with Euro - V specifications but also increase production of deficit products of petrol and diesel by 99 % and 47 % respectively and also reduce production of furnace oil by 78%, which because of drastically reduced demand in recent years often results in storage constraints forcing the refineries to reduce capacity utilisation.
The refineries upgradation will bring in investment of $ 5 - 6 Billion and not only result in cleaner environment friendly fuels but also major savings of precious foreign exchange.
The Refineries Upgradation Policy would surely be termed as the most important achievement of the Care Taker government and it is hoped that it would be implemented in it’s true letter and spirit, he added.
Copyright Business Recorder, 2024