Upgradation of existing/Brownfield refineries: 6-month extension proposed in policy signing

ISLAMABAD: Petroleum Division has proposed six months’ extension in signing of Pakistan Oil Refining Policy for upgradation of existing/Brownfield refineries as a few refineries are still not ready to sign the policy.

Prime Minister Shehbaz Sharif had also directed Petroleum Division to arrange signing ceremony in his presence, but the latter has so far not been successful in firming up the date for the signing ceremony.

Petroleum Division, in its summary to be considered by the Cabinet Committee on Energy (CCoE), in its forthcoming meeting considered the summary of Petroleum Division on 6 February, 2024, and approved the proposed amendments in the subject Policy. The CCoE decision has also been ratified by Federal Cabinet on February 15, 2024.

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Accordingly, the amended “Pakistan Oil Refining Policy for Upgradation of Existing/ Brownfield Refineries 2023” was notified for implementation by OGRA and Refineries.

The Policy is aimed to upgrade the existing refineries to produce environment friendly Euro-V fuels and decrease the production of Furnace Oil. To achieve this objective, the Policy provides incremental incentive of 2.5% on HSD (in addition to current 7.5%) and 10% on MS in the form of deemed duty for 7 years. The incremental incentive will be deposited in an escrow account maintained by OGRA with respective refinery for meeting up to 27.5% of the upgrade projects’ cost. OGRA will allow withdrawal of funds from escrow account by the respective refinery, post financial close of the Upgrade Projects and against expenditure made for each milestone/deliverables.

To avail the said incremental incentive, the refineries are required under clause 6.1.2.2 & 6.1.3.1 of Policy to execute Upgrade Agreements, open an Escrow Account with OGRA and provide Rs. 1 billion bank guarantee to OGRA within 60 days of notification of the subject Policy i.e. by the now past date of April 22, 2024.

Clause 6.1.3.5 of Policy provides that Deemed duty on HSD shall be reduced from 7.5% to 5% for refineries which do not sign the Upgrade Agreement (UA) within said deadline of sixty days.

In this regard OGRA have updated that ARL, NRL and PRL have conveyed their readiness to sign the Upgrade Agreement and Petroleum Division may coordinate for signing ceremony of the Policy. However, PARCO and Cnergyico Pakistan Limited (CPL), jointly contributing more than 50% of country’s refining output, have yet to finalize the Upgrade Agreements. It is also updated that PARCO is in process of updating its feasibility study after which PARCO Board of Directors will take decision on the planned upgradation. The activities may take 5-6 months. Similarly, a settlement agreement between CPL and the Government of Pakistan for payment of outstanding petroleum levy is also being negotiated, which may not be concluded before 22nd April 2024. In case of non-signing by due date during 2024 prevailing deemed duty on HSD shall be reduced from 7.5% to 5% for PARCO and CPL, making operation of these refineries extremely challenging.

In view of current situation Ministry of Energy has proposed that the deadline for signing of the Upgrade Agreement as required under Clause 6.1.3.5 and 6.1.3.1 of subject Policy and other associated deadlines may be extended by 6 months from April 22, 2024.

According to sources three refineries namely Attock Refinery Ltd, National Refinery Ltd and Pakistan Refinery Ltd had given consent to sign the Agreements before the deadline and two refineries PARCO and Cnergyico needed more time but the Petroleum Division did not arrange signing with the willing refineries nor extended the deadline date in time to accommodate PARCO’s request. It may be noted that the Refining Policy has already taken more than four years in the making causing about $ 4 billion losses to the country. ARL, NRL and PRL plan to invest $ 3 billion on their Upgradation Projects. The total investment will go up to $ 6 billion when PARCO and Cnergyico join in.

Copyright Business Recorder, 2024