CCoE plans to endorse Pakistani oil refining policy 2021
ISLAMABAD: The Cabinet Committee on Energy (CCoE) is due to meet on Thursday to consider giving formal approval to Pakistan’s 2021 oil refining policy.
The meeting will be held under the chairmanship of Minister of Planning, Development and Special Initiatives Asad Umar and is expected to address four agenda items, including the draft Pakistani Oil Refining Policy 2021, Oil Import and port constraints in Karachi, the commission of inquiry. constituted by GHCL regarding the damage of the No. 14 gas turbine of a 747 MW combined cycle power plant in Guddu, and the monthly report sheet of the plants operated on merit, in addition to any other item with the authorization of the President.
According to sources, the petroleum division forwarded an updated summary to the CCoE that includes changes such as a 30 percent cap on the cost of the project instead of the previous 40pc, 10pc tariff protection for existing refineries on motor gasoline and diesel with the construction of modernization projects before December 31, 2025, and the abolition of the 10-year tax holiday for existing refineries, etc.
Sources have reported that the CCoE is expected to give its formal approval to Pakistan’s 2021 Oil Refining Policy at the next meeting.
Previously, the committee, while approving the policy in principle, had raised questions about the proposed incentives for refineries. He had questioned the use of the additional revenue, the use of deemed rights by refineries and the collection of revenue and its use if the government allowed tariff protection of 10pc.
The CCoE reported that the five refineries collected around 200 billion rupees in alleged duties from 2002 to 2020 and used 199 billion rupees to modernize their factories, with BYCO becoming the only refinery to spend 15 billion rupees on more than its collection under the deemed department head during this period.
Details show Pak Arab Refinery (PARCO) raised Rs 76 billion and spent Rs 66 billion, Attock Refinery Ltd. raised Rs 47 billion and spent Rs 26 billion, National Refinery Ltd. raised Rs 40 billion and spent Rs 37 billion, Pakistan Refinery Ltd. raised Rs 36 billion and spent Rs 17 billion while BYCO Petroleum Pakistan Ltd. collected Rs 38 billion and spent Rs 53 billion during said audit period.
In order to ensure the delivery of quality products to consumers, the government has constantly improved the desired specifications of refined products in order to stay aligned with the global refinery market as well as international quality standards. Improved product standards have led to the upgrading of existing factories to remain commercially viable against the headwinds of importing petroleum products from the international market.
According to the sources, the five existing refineries have constantly improved their installed configurations in accordance with the new specifications and are in competition with international suppliers in accordance with the tariff protection formula given in the budget speech on the 2002 budget bill, according to which the refineries were required to operate and compete in the market on their own, with no prerequisite for upgrading.
“Local refineries have improved the specifications of gasoline and high speed diesel (HSD) products,” sources said. They added that the refineries invested 200 billion rupees against the collection of the alleged duties.
The collection of the alleged duty had been a controversial topic, as many believed that the refineries had received billions of rupees but had not invested in modernizing the factories until the petroleum division in September of this year. settled the ten-year-old controversy by ensuring that they had invested 200 rupees. billion projects.
The deemed duty was introduced after the abolition of the guaranteed return formula (10-40pc) in 2002 with the aim of running refineries on a self-financing basis, compensating for losses and expanding / upgrading . Tariff protection of 10% was introduced for diesel and 6% for JP-4, kerosene and light diesel.
However, in 2007-08, tariff protection was limited to diesel and was reduced to 7.5 pc, effectively reducing tariff protection to around 2 pc for all production.
Documents available with Profit show that there will be tariff protection in the form of an import duty of 10 pc on motor gasoline and diesel of all qualities as well as imports of any other white product used as fuel for any engine or engine, from the date of commission for six years, provided that a refinery begins construction of a project before December 31, 2025.
Likewise, there will be no import duties and sales tax on the import of crude oil from July 1, 2022, being the main raw material. However, the finished products will be subject to import duties and sales tax notified from time to time by the competent authority.
Profit also learned that the government will publish a pricing mechanism for the pricing regime for new refinery projects that will be no less favorable than the mechanism in place until deregulation.
The pricing formula for refinery products will be based on the True Import Parity Price (IPP), which will be derived from the average Arab Gulf FOB spot price, or, if not published, will be derived of the average Singapore FOB price.
The government will add all other items, including premiums, freight, port charges, incidentals, import duties, exchange rate, provincial taxes, if applicable, and various price adjustments depending on the actual imports from PSO.
In addition, current domestic freight of crude oil imported to refineries and provincial duties, levies and taxes on crude oil imports will be added for refineries.
All new deep conversion oil refinery projects with a minimum refining capacity of 100,000 b / d as well as the infrastructure projects mentioned in the policy, to be implemented anywhere in the country, which begin construction of the project before December 31, 2025, will be eligible.
The new deep conversion refinery must maximize bottom-of-barrel conversion into value-added products.
It is relevant to mention that the government had already approved an initial tariff of 10 pc for the existing tariff in the FY22 budget. The government, through the new policy, intends to provide the incentives and tariff protection necessary to attract $ 10 billion to $ 15 billion in investment in the sector, as well as to support existing refineries in their efforts to modernize and upgrading, being a strategic asset for the country.