ISLAMABAD: Pakistan has suffered an opportunity loss of $1-1.5 billion as of today because of failure in the implementation of the amended brownfield refinery policy 2023 for the upgradation of local refineries.
“Had it been implemented a year back, the additional production of petrol and diesel with Euro-5 specification would have saved $1-1.5 billion in the shape of reduction of the oil import bill,” a senior official of the Energy Ministry told The News. “This is how the country has braved the loss of up to $1.5 billion to its economy which could have been turned into the saving to the economy.”
“The Shehbaz government has given the extension of refineries’ upgradation policy implementation to accommodate PARCO and Cenergyico Pk Limited (CPL). The other three refineries—Attock Refinery Limited (ARL), Pakistan Refinery Limited (PRL) and National Refinery Limited (NRL) which were opposed to the extension in the implementation of the policy have been allowed to sign. But the tax authorities played a foul as they did in the case of the petroleum dealers exposing them to double taxation. When the petroleum dealers threatened to go on a countrywide strike then FBR instead of admitting its fault, gave a clarification and resolved the issue.”
The official said that now in the case of the upgradation of local refineries policy, tax authorities have introduced in the finance bill for FY25 the exemption of sales tax on petrol (MS), high-speed diesel (HSD), and light diesel oil (LDO) introduced in the finance bill which will neutralize the incentive package of $1.6 billion the government will extend in 7 years. This change by the government in the Finance Act on Refineries has a significant impact that may render existing refining operations unsustainable, make projects and investments under the amended brownfield policy for upgradation of local refineries economically unviable, significantly affecting project internal rates of return (IRRs). This has virtually put the $5 billion investment in the upgrade projects of local 5 refineries in the doldrums.
Now next week, the secretary petroleum division has arranged a meeting of refineries representatives with the FBR chairman but the date and time of the meeting are not yet finalized. The official said that in the case of the refineries, FBR may not be able to clarify, but it would have to reverse changes in the Finance Bill through parliament. It may take time from 2-3 months and the signing by ARL, PRL, and NRL for implementation agreements (IAs) would further delay, meaning that the $3 billion investment from the said three refineries in upgradation would further delay.
When contacted for his views on the adverse impact of the exemption of petroleum products from sales tax on operations and refineries’ upgradation projects, Adil Khattak, Chairman Oil Companies Advisory Council (OCAC) stated that refineries have had meetings with Minister and Secretary Petroleum Division as well as Chairman, Oil & Gas Regulatory Authority (OGRA).
Authorities have expressed understanding and support on these issues which threaten not only the successful implementation of the Refineries Policy but also the normal operations of the refineries.
Mr. Khattak appreciated the positive attitude of the relevant authorities who have assured their support in overcoming all hurdles in the implementation of the Brownfield Refineries Upgradation Policy which is considered a major achievement of the present government.
Earlier, before the Federal Budget, three refineries namely ARL, NRL and PRL had agreed to sign Upgradation Agreements with OGRA bringing an investment of US $ 3 billion and Parco and Cnergyico had sought more time for which 6 months extension was approved recently. Mr Khattak lamented that at a time when the refineries were gearing up to take up their upgrade projects, the exemption of sales tax in the finance bill has struck a serious blow to their upgrade plans and even normal operations.
The more than four years delay in Refineries Policy formulation and approvals has already caused an estimated four Billion Dollars loss in terms of foreign exchange alone. This is in addition to the enormous opportunity loss to the refineries.
In contrast, India followed up its 2025 Vision for the Energy Sector and today not only has the largest and most modern refining complexes but also exports petroleum products to countries with the most stringent environmental standards.
