ISLAMABAD : The Economic Co-ordination Committee (ECC) of the Cabinet is likely to approve, on Monday, a three-year oil refinery policy containing incentives for oil refineries and penalties if the refineries failed to complete the projects for upgradation of the petroleum products by 2012.
Sources told Business Recorder on Saturday that the new formula for 'deemed duty' for oil refineries would be implemented from May 1, 2009, if the ECC accorded its approval. Under the new policy, the Petroleum Ministry has proposed to increase in 'deemed duty' from 7.5 percent to 10 percent, with a cap at $80 per barrel.
It has been proposed that the formula would be revised after three years. Sources said that the government and the oil refineries are expected to enter into an EPC agreement in December 2009 and its implementation would start from July 2010. They said that Petroleum Ministry will monitor the work on the upgradation projects, and if the oil refineries were found failing to start work on the projects during the monitoring, 'deemed duty' would be withdrawn by the government.
Under the policy, the government will arrange, through State Bank of Pakistan (SBP), foreign exchange for oil refineries to import crude oil. The government will be able to impose penalty after three years, if oil refineries failed to complete the projects for upgradation of petroleum products by 2012.
The sale of the products of those oil refineries will be banned in Pakistan as penalty if they failed to complete the projects in stipulated time, sources said. Petroleum Ministry has also proposed to ECC to provide 50 percent financing on the paid up capital of oil refineries to establish the projects, sources added.
The government had started giving 'deemed duty' in 2001 and had written a letter to oil refineries on June 20, 2002 that it would be revised after one year. But due to strong lobby, the government revised it down in 2008, from 10 to 7.5 percent. Finance Ministry is also opposing to place upper cap at $80 per barrel crude oil to give deemed duty to oil refineries, and wants it at $70 per barrel crude oil.
Finance Ministry has also opposed raise in deemed duty from 7.5 percent to 10 percent. However, the final decision will come in the meeting of the ECC. Oil refineries claimed that they are facing losses after government reduced deemed duty from 10 to 7.5 percent on July 31, 2008. The deemed duty was reduced when crude oil price stood at $147 per barrel in international market.
Official sources claimed that oil refineries had failed to reduce sulphur content in diesel and lead content in petrol to meet the set standards despite receiving 10 percent deemed duty since 2001. No oil refinery has set up de-sulphuration plant to upgrade the petroleum products. Earlier, Petroleum Ministry had proposed imposition of processing fee but withdrew the idea of replacing deemed duty with processing fee due to resistance from the oil refineries.
The government had offered processing fee of $3.5 per barrel crude oil to National Refinery Limited (NRL) and Pakistan Refinery Limited (PRL) and $5 per barrel processing fee to Attock Oil Refinery and Bosicor Pakistan Limited (BPL). These four oil refineries in a joint letter addressed to the Petroleum Ministry had refused the said processing fee and demanded raise in deemed duty from 7.5 percent to 10 percent.
These refineries claim that they are facing loss in line with the reduction in global oil prices. At present, there is no mechanism to monitor oil refineries on government side and after implementation of new proposed deemed duty formula, the government will monitor the operations of oil refineries. The new proposed formula will also enable the government machinery to maintain the record of the oil refineries through regular monitoring, sources added.
Copyright Business Recorder, 2009
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