Staff Report
ISLAMABAD:
The Engineering Development Board (EDB) has expressed disagreement over a proposal of Petroleum Division to grant exemption from taxes on import of equipment or material without any precondition for new and existing refineries.
The Ministry of Industries & Production (MoI&P) has expressed disagreement over a proposal of Petroleum Division to grant exemption from taxes on import of equipment or material without any precondition for new and existing refineries.
According to sources, Ministry of Industries & Production (MoI&P) has said that the draft Pakistan Oil Refining Policy 2021 was considered and examined in the Industries & Production Division. And, the Engineering Development Board (EDB) has forwarded its views/comments on the proposed Pakistan Oil Refining Policy 2021of the petroleum division. They said that EDB has asked to delete or substitute the clause which asked for exemption from taxes on imports of any equipment or material without any precondition certification from the EDB for new and existing refineries. They said the EDB is of the opinion that this clause places the local industry at disadvantage. And, “is therefore not concurred’, said EDB in its comments.
EDB in its comments/views also proposed that the said clause may be deleted or substituted with a clause saying,”The refineries shall actively engage local manufacturers/EDB for supply of locally manufactured equipment. No concession in import duties and taxes shall be allowed on import of such equipment/goods, the project requirement shall be duly certified by MoPET & NR”.
EDB in its views/comments advocated that setting up or upgradation of refineries provides an opportunity for the local equipment manufacturers to participate in the process and generating local employment opportunities while saving valuable foreign exchange as well. The local manufacturers are already deprived of participation in EPC contracts, mega projects and those set up in SEZs being unable to compete against concessionary imports allowed to such projects. Since no concession in inputs used by local manufacturer to provide equipment used in such projects is available so a proposal of the draft Pakistan Oil Refining Policy 2021asking exemption from taxes on imports of any equipment or material without any precondition of certification from the EDB for new and existing refineries places the local industry at disadvantage and is therefore not concurred, said EDB in its comments.
EDB further said that the petroleum sector including oil refineries enjoy concession in duties and taxes under various other regimes, SRO 678 (1)/2004 dated August 07, 2004, 5th and 6th schedule to custom act 1969 to quote somewhere other than dedicated refinery equipment not manufactured locally can be imported under concessionary duties and taxes.
It is relevant to note that the Petroleum Division had earlier asked the Oil and Gas Regulatory Authority (OGRA), Federal Board of Revenue (FBR), Board of Investment (BoI) and secretaries of concerned departments to furnish comments on the proposed new oil refining policy within 15 days for onward submission to the Cabinet Division.
According to the new policy framework, which has been finalised in consultation with the local refining industry, all new deep conversion oil refinery projects of a minimum of 100,000 barrels per day (BPD) refining capacity, to be set up anywhere in the country with government approval latest by Dec 31, 2021, shall be eligible for 20-year income tax holiday from profits and gains from the date of commissioning.
The government will not guarantee product off-take and the refineries would be free to market their products through their own or other marketing companies or export after meeting local needs.
They would also be entitled to exemption from customs duty, withholding tax or any other levy on import of any equipment to be installed, or material to be used in the refinery without certification by the Engineering Development Board (EDB). They would also avail exemption from general sales tax, or any other ad valorem tax on the import of equipment to be installed or materials to be used in the refinery prior to commissioning.
Likewise, the product pricing formula will be based on true import parity price to be derived from Arab Gulf mean FOB spot price, or from the Singapore mean FOB spot price. All other elements including premium, freight, port charges, incidentals, and import duties will be added to the final consumer price. Additionally, prevalent inland freight of imported crude oil to a refinery will be added for upcountry refineries.
The refineries shall be allowed to open and maintain foreign currency accounts besides, retaining a certain portion of export proceeds in foreign currency to meet operational requirements.
Furthermore, there will be no restriction on the selection of equipment, technology, or process other than the fact that it must be a deep conversion refinery. No new hydro-skimming refinery will be allowed to be installed in the country.
Infrastructure such as Single Point Mooring (SPM), Single Buoy Mooring (SBM), jetties, subsea/land pipelines, oil terminals, and tank farms that are part of the overall refinery design, will be treated as integral to the refinery and will be facilitated in coordination with various concerned ministries and government entities.
The government will not provide any product off-take guarantee and the refineries would be allowed to sell products to any marketing company, including their own facilities in marketing and distribution.
However, the import of a finished product will be limited to the projected deficit, ensuring the uplifting of local refined products first. Locally produced crude will be allocated to the closest refinery that can handle crude. Export of surplus petroleum products, or products with specifications that do not have local demand will be allowed.
No refinery will be allowed to market petroleum products of specifications with inferior quality than those notified by petroleum division from time to time, unless it has a waiver from the government. If it produces an inferior product and does not have a waiver to sell it locally, it will be free to export.
It is pertinent to mention here that the new policy aims to provide the enabling framework that will lead to complete deregulation of the sector in due course.
Currently, Pakistan’s oil refining capacity is about 20 million tonnes per annum. About 60pc of the country’s requirements of diesel and 30pc of petrol are met by local refineries. The rest is imported as refined products.
Four out of five refineries operating in Pakistan are using mostly old technology and even the fifth one, PARCO, is now more than two decades old.
