'Deemed duty' on HSD to be eliminated gradually: oil refineries informed

The Ministry of Petroleum has informed the oil refineries that 7.5 percent deemed duty on high speed diesel (HSD) will be gradually eliminated which the latter have strongly opposed, Business Recorder has learnt. Judicial Commission pointed out that the objective of the Petroleum Ministry in granting deemed duty on petroleum products to enable the refineries to operate on self-financing basis and upgrade their products, was never achieved.
During the investigation, the judicial commission found that no refinery had set up upgradation plant for products. "In working out a fair and appropriate formula of ex-refinery prices, distorting concepts such as 'deemed duty' should be eliminated from the pricing mechanism," recommended the judicial commission. But after facing pressure mounted by the refineries, the Petroleum Ministry had moved a summary to the Economic Co-ordination Committee (ECC) of the Cabinet to continue 7.5 percent 'deemed duty' on HSD. This was approved.
In a meeting held on Monday, January 31, with the Oil Companies Advisory Committee (OCAC), Minister Petroleum Naveed Qamar said that deemed duty on HSD would end gradually to provide relief, to the consumers. "The OCAC has been informed to end deemed duty on HSD after facing pressure from Parliamentary Committee on oil pricing, which is examining oil pricing mechanism thoroughly in an effort to provide relief to the consumers at a time when global oil prices are rising," sources said.
During the meeting, the refineries resisted the move to end deemed duty on HSD, saying that they were in poor financial health due to circular debt issue. The oil refineries generated a whopping amount of Rs 80 billion on account of deemed duty on petroleum products under deemed duty based oil pricing formula from 2002 to December 2009. Pak Arab Refinery (Parco) received Rs 30 billion, PRL, NRL and ARL Rs 45 billion and Rs 5 billion by Bosicor in eight years from 2002 to December 2009.
Earlier, Import Parity Pricing (IPP) formula for refineries was introduced in 1992-93 with the approval of ECC allowing the minimum 10 percent guaranteed rate of return with upper limit of 40 percent. Under this formula government paid Rs 17 billion to refineries and in return, they deposited Rs 3 billion in the government account. Oil refineries received net amount of Rs 14 billion during 1993 to 2002 and total money pocketed by oil refineries under both 'guaranteed return' and 'deemed duty' formulas stood at Rs 94 billion during 1993 to 2002 and 2002-2009. The formula was further revised in 2007-2008 by reducing deemed duty to 7.5 percent on HSD.