Staff Report
ISLAMABAD:
Petroleum division has revised draft Pakistan Oil Refining Policy 2021 and Cabinet Committee on Energy (CCoE) is likely to take a decision on revised draft Policy in its upcoming meeting to be held during the on-going week.
According to sources, CCoE in its next meeting is likely to take a decision on revised draft Pakistan Oil Refining Policy 2021 which would be tabled by petroleum division. They said that next meeting of the CCoE is likely to be held during this on-going week. They said revised draft Policy has been seen by the minister for energy (petroleum division) and he has authorized submission of a summary to the CCoE. The petroleum division has prepared revised draft Policy following the direction of the Economic Coordination Committee (ECC) of the Cabinet to place a summary before the Cabinet Committee on Energy (CCoE). The Petroleum division has prepared a draft of Pakistan Oil Refining Policy 2021 for CCoE’s consideration and approval, said sources.
Earlier, the Economic Coordination Committee (ECC) of the Cabinet in its meeting held on 20th August 2021 directed petroleum division to review the policy with reference to specific points/observations highlighted by the forum and submit the revised draft policy to the CCoE for consideration after incorporating viable recommendations therein.
As per details, petroleum division has drafted point wise response after incorporating certain modification in draft policy.
According to point wise response, upfront utilization of incremental tariff protection revenue was previously provided in the policy with effect from 1st January, 2022, however, under the new proposed arrangement this amount can only be used after award of EPC (engineering, procurement and construction) contract by the respective refineries which is expected by start of 2024 (Sub-section 9.2.3.9 of the Policy). Similarly, Oil and Gas Regulatory Authority (OGRA) will monitor the incremental revenue to be deposited in a special reserve account by each refinery under a separate bank account to be opened in National Bank of Pakistan (NBP) and ensure its utilization for the purpose of the up-gradation/expansion of the refineries, on proportionate basis of the incremental revenue and refinery’s contribution (under the principle of Sub-section 9.2.3.9 of the Policy). Likewise, in order to simplify the government’s arrangements, the mechanism of hiring of joint external consultant as proposed during the presentation in CCoE’s meeting dated 20th August 2021 has been dropped. More, as force majeure is a project specific contractual arrangement hence it has been deleted from the draft Policy (Sub-section 9.2.3.11 of the Policy). Furthermore, previously, bank guarantee worth Rs 500 million per refinery was required till financial close. As an abundant precaution, this has been extended till commissioning of the project (COD). The form and features of guarantee will be subject to acceptance by MEPD (Sub-section 9.2.3.11 of the Policy).
Sources said that government has been emphasizing refineries to produce Euro-V specification fuels and the proposed oil refining policy 2021 is likely to provide incentives for up-gradation of existing refineries to produce Euro-V specification products as well as encourage potential investor to establish new state of the art deep conversion refineries through fiscal support.
“The existing refineries have progressively upgraded their infrastructure, however, due to high capital requirement, lack of tariff protection and low returns on investment, the existing refineries could not keep pace with the technology around the world,” said the sources.
They added that huge capital investment of around US $ 2 to 3.5 billion is required for producing Euro-V specification products which can only be arranged by the refineries from lending institutes at commercial terms.
