Staff Report
ISLAMABAD:
Byco Refinery has spent Rs 15 billion extra to the amount it had collected under the head deeded duty from the year 2002 to 2020 on the up-gradation of its refining plants in the country.
According to documents, country’s five refineries have collected Rs 237 billion on account of deemed duty from 2002 to 2020 and they utilized Rs 199 billion on up-gradation of their plants while Byco refinery remained at top in spending more than to its collection of the deemed duty.
Well-informed sources disclosed that upcoming Cabinet Committee on Energy (CCoE) is likely to take up details of audit regarding collection and utilization of billion rupees worth deemed duty from 2002 to 2020 by the five refineries of the country. They said that next CCoE is likely to be held during the next week and it is likely to take up a summary of the petroleum division regarding tariff protection (deemed duty) for refineries. They said in compliance of a decision of the Cabinet Committee on Transport and Logistics (CCoTL), Petroleum Division through a summary will present details of audit regarding collection and utilization of billion rupees worth deemed duty from 2002 to 2020 by the refineries. Local refineries have made improvements in the product specifications of motor gasoline (petrol) and high speed diesel (HSD), said the sources.
They added that refineries have up-graded their plants by using deemed duty as well as their own resources and got its financial/technical audit.
Sharing details of deemed duty, the sources said that Pak Arab Refinery (PARCO) had collected Rs 76billion and spent Rs 66 billion while Attock Refinery Ltd. collected Rs 47billion and spent Rs 26 billion. Similarly, National Refinery Ltd. collected Rs 40 billion and spent Rs 37 billion, while Pakistan Refinery Ltd. collected Rs 36 billion and spent Rs 17 billion. Furthermore, Byco Petroleum Pakistan Ltd. collected Rs 38 and spent Rs 53 billion during the said audit period (2002 to 2020).
In order to ensure supply of quality products to the consumers, the government has been constantly improving the desired specifications of refinery products to remain aligned with global refinery market as well as international quality benchmarks. And, improvement in product standards has led to the up-gradation of existing plants to remain commercially viable against the headwinds of import of oil products from international market.
As per brief chronology of improvement of product specifications by refineries of the country, enhancement of motor gasoline research octane number (RON) from 80 to 87 RON in 2000, elimination of lead from motor gasoline in 2002, enhancement of motor gasoline RON from 87 to 92 (Euro-II) in 2016 and Euro-V motor gasoline is next target for 2026. Similarly, prior to 2012, sales of diesel @ 1 percent Sulphur content, shift to diesel @ 0.5pc Sulphur content in 2012, shift to diesel @ Euro-II @ 0.05% Sulphur content and next target is Euro-V HSD @ 0.001 Sulphur content.
As per sources, existing five refineries have constantly been upgrading their installed configurations in compliance of new specification and to compete with international suppliers in line with tariff protection formula given in budget speech on finance bill 2002 whereby refineries were required to operate and compete in the market at their own (without precondition for up-gradation).
Earlier, Cabinet Committee on Transport and Logistics (CCoTL) had directed the petroleum division to carry out an audit of the deemed duty collected and utilized by the refineries for their up-gradation. And, Directorate General of Oil, Ministry of Energy (Petroleum Division), in a letter dated 6th September 2021 to the managing directors (MDs) of six refineries (Pak-Arab Refinery Limited, Byco Petroleum Ltd., Attock Refinery Limited, National Refinery Limited, Pakistan Refinery Limited, ENAR Petroleum Refining Facility Ltd.) had asked to provide a yearly breakup of deemed duty collected by each refinery and its utilization since its inception. Also, reports of audits of deemed duty conducted by 3rd party or government auditors from its inception.
“Above information/reply should be furnished within two (2) days, enabling this division to onward submission to CCoE of the Cabinet. Further, the soft copy of the requisite information in MS-Excel format may also be e-mailed at “ dirfpoil@gmail.com”, in addition to the hard copy,” said the petroleum division’s letter.
According to sources, collection of the deemed duty has so far remained a controversial subject for the refineries. And, many believed that the refineries had received billions of rupees but they did not invest in plant upgrades. The Cabinet Committee on Energy (CCOE) had earlier raised several questions over the proposed Refinery Policy 2021 and the major question was how much deemed duty the oil refineries had collected and what was the total investment in upgrading the projects out of the total receipts.
In response to the observations of the CCoE, the Petroleum Division, in a meeting held on August 20, 2021, had recalled that deemed duty (tariff protection) was introduced post-abolition of the guaranteed return formula (10-40 per cent) in 2002 to run the refineries on a self-financing basis, offsetting losses and expanding/ upgrading. A 10pc tariff protection was introduced for diesel and 6pc for JP-4, kerosene and light diesel oil. However, in 2007-08, the tariff protection was limited to diesel and was slashed to 7.5pc, effectively reducing the tariff protection to around 2pc for the overall production slate. And, since then, the refineries have invested capital expenditure of approximately Rs200 billion against the collection of deemed duty, said sources.
It is worth mentioning that the tariff protection formula (deemed duty) introduced in 2002 for the existing refineries was aimed at ensuring their operational sustainability. And, the matter of deemed duty was discussed in the CCoE’s meeting held on 13th September 2021 while considering petroleum division’s summary dated 30th August 2021 on the Pakistan Oil Refining Policy 2021 and CCoE approved the policy to the extent of establishment of new refineries whereas petroleum division was directed to present workable option for sustainability and up-gradation of existing refineries. CCoE also required further clarity on the utilization of revenue stream arising out of tariff protection (deemed duty) on offsetting of losses instead of up-gradation in the past.
