Revised refinery policy: Ogra kept out of anomaly-correcting body

The federal cabinet has reportedly not included Oil and Gas Regulatory Authority (Ogra) in the Ministerial Committee meant to address anomalies in implementation of revised Refinery Policy.

According to official documents, during discussion at the CCoE meeting on “Pakistan Oil Refining Policy 2023 - for upgradation of Existing/ Brown Refineries” Finance Division observed that the proposal about continuation of additional incentive of 7.5% deemed duty on HSD for 20 years beyond the 7 years’ incentive period would mean higher price of HSD for end consumers, despite increased production capacity of the refineries. Therefore, proposed incentive was not supported.

With regard to the reduction of deemed duty to 5% for existing refineries that did not sign the Upgrade Agreement (UA), the observation was that it seemed counterproductive to the aim of refinancing only producing Euro-V compliant fuel under the subject policy.

Finance Division did not support its inclusion in the composition of proposed Committee. It would be appropriate to include a representative of Board of Investment (BoI) as it is essentially an investment-related anomaly Committee. It was suggested that taxation-related incentives should not be included in the policy, considering that government of Pakistan was in an IMF Program and tax revenues have to be fully protected.

A Project Management Unit (PMU) comprising of technical financial experts and representative from refineries may be constituted at Petroleum Division to ensure smooth implementation of the Policy.

Ministry of Planning, Development and Special Initiatives argued that in principle, the tariff protection for existing old refineries needed to be discouraged and deregulation of the refining sector may be considered.

Ministry of Planning further stated that the proposal for incentives had been based on report of the consultant KPMG which appears to have made different assumptions and parameters for each refinery.

As per analysis, ARL, PRL and NRL would have better financial health even without continuation of deemed duty and taxation on CAPEX incentive which necessitates review of the proposed relaxations accordingly: Clause 6.1.3.5 of the policy needs clarification with respect to the reduction of deemed duty from 7.5% to 5% on HSD for the refineries which did not sign Upgradation Agreement within one month of notification of the amended policy. It was suggested that the additional incentives regime may be reviewed holistically.

Alternatively, Petroleum Division may consider carrying out the proposed Front-End Engineering Design (FEED) study independently through 3rd parties by hiring firms of international repute to firm up the case for the proposed incentive regime.

It was also suggested that the Committee proposed in summary also looks into the legal issues; therefore, Secretary, Law and Justice Division should be included in the composition of the Committee proposed in place of Chairman, OGRA.