CEOs/MDs of all refineries meet with Hamad and Tabish Gauhar
Staff Report
ISLAMABAD:
In order to ensure technical up-gradation of existing refineries and incentivise new investment, Energy Minister Hamad Azhar and Special Assistant to Prime Minister (SAPM) on Energy Tabish Gauhar has agreed to resolve the issues of refineries during a meeting with top men of all the five refineries.
According to sources, the top man (Chief Executive Officers (CEOs),/Managing Directors/ Chairman) of all the five refineries on Wednesday had a meeting with Federal Energy Minister Hammad Azhar and Special Assistant to Prime Minister (SAPM) on Power & Petroleum Tabish Gauhar. And, during the meeting, refineries raised their issues before the federal minister and SAPM.
Sources said that the meeting went very well and both the Federal Minister and SAPM promised to resolve the issues raised by refineries in consultation with Finance Minister Shaukat Tarin. Similarly, both the Energy Minister and SAPM assured the meeting that they will make efforts in order to ensure technical up-gradation of existing refineries and incentivise new investment. The government is not likely to shelve refineries’ upgradation project as both Hamad and Tabish Gauhar have given assurances to refineries about the resolution of their issues, said sources.
“Energy Minister and SAPM said they understand the issues and will arrange a meeting with the Finance Minister (FM) for resolution of these issues and the meeting with FM will happen in the next few days,” said the sources.
They added that top men of all the five refineries are likely to meet with Federal Finance Minister Shaukat Tarin during next few days for the resolution of those issues which they raised in a joint letter to Secretary Petroleum Dr Arshad Mahmood while giving refineries comments on Finance Bill-2021-22.
In a joint letter dated 14th June, 2021 to the Secretary, Ministry of Energy Petroleum Division, all the five refineries including Attock Refineries Limited, BYCO Petroleum Pakistan Limited, National Refinery Limited and Pakistan Refinery Limited had raised objection to the imposition of duties and taxes on crude oil and absence of incentives for the industry and demanded that the government should realign the Finance Bill FY22 with the consensus between them and the Ministry of Energy (MoE) to ensure the sustainability of existing refineries.
The refineries pointed out that the objective of the collectively agreed incentive package under the refining policy was to ensure sustainability of existing refineries in the face of existential challenges and support cash generation for upgrading refineries’ production to environmental friendly Euro-V fuels and reduce furnace oil production. However, the budget 2022 had gone in the opposite direction.
Criticising the imposition of 2.5pc customs duty on crude oil, the refineries said the two sides had agreed before the budget to keep the customs duty on crude oil at zero being a raw material for refineries. This was also in line with other industries where import of raw material has been exempted from application of customs duty.
“This custom duty on crude oil will increase the cost of production and will negatively impact refineries’ profitability”, they said, adding consequently this will significantly reduce the cash generation for upgradation projects unless allowed to pass on to consumers.
Similarly, the letter added that the 17 per cent GST proposed on crude under the budget for next fiscal year would not yield any additional revenue for the government as it was adjustable. However, it will create significant working capital issues in an already financially stressed industry. It is estimated that this will increase financial charges and erode profitability of refineries, in addition to reducing cash generation required for upgrades.
Regarding the tax holiday on upgradation, the letter said that under clause 126 B (b) of second schedule of the Income Tax Ordinance, tax holiday was already available to existing refineries for the purpose of upgradation, modernisation or expansion project. It was agreed as part of draft refining policy by two sides before the budget that a period of tax exemption of 10 years would be mentioned in this clause for the purpose of clarity and bringing it in the line with the incentive proposed in the draft refining policy. Contrarily, the budget 2022 has proposed that the tax holiday would be applicable on upgrades to deep conversion refinery’s project of at least 100,000 barrels per day (bpd) capacity.
“This will exclude all of the existing refineries and is counter-productive to the objectives of the agreed package”, the refineries said.
Furthermore, under clause 126B of the second schedule of Income Tax Ordinance, a 20 year tax holiday was already available for new deep conversion refineries and it was agreed that this will be maintained. Unfortunately, budget has proposed the tax holiday applicable to new deep conversion refineries of at least 100,000 bpd capacity would be limited to 10 years. “This will discourage the much needed foreign investment in the refining sector”, the letter said.
The refineries hoped the other duty and tax exemptions like custom duty and sales tax on import of plant and machinery etc agreed under incentive package, for both existing refineries’ upgradation and investment in new refineries will be notified separately at the earliest.
It is pertinent to mention here that a draft incentive package was earlier prepared after extensive deliberation between the stakeholders, with the commitment of refineries for upgradation within five years to produce environmental friendly Euro-V spec products and reduce furnace oil production. After this duration, refineries will be in a position to operate at optimal capacity with technological enhancement, which will result in forex saving.
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.
