$6bn refinery investment in limbo as extension period ends

ISLAMABAD: A critical meeting of the Special Investment Facilitation Council (SIFC) is set for October 22 (today) to discuss upgrading local refineries under the brownfield policy. This meeting coincides with the expiry of the 60-day extension granted by the government for refineries to sign implementation agreements (IAs), a senior official of the Energy Ministry told The News.

However, none of the refineries have inked the IA with OGRA due to unresolved issues surrounding sales tax exemptions on diesel, petrol, kerosene oil, and light diesel oil, imposed in the FY25 Finance Bill. This impasse puts the $6 billion investment for refinery upgrades at risk.

The top notches of the Petroleum Division, he said, prepared a summary for the SIFC meeting. “The Managing Director of all local refineries would also attend the meeting.” The SIFC meeting would figure out how to persuade the IMF that the sale tax exemption on diesel, petrol, kerosene oil and light diesel oil imposed in the Finance bill for FY25 is detrimental to the $6 billion upgrade projects of refineries.

Earlier in letters to DG SIFC (Special Investment Facilitation Council)—one on September 2 and the second on October 2, 2024, the chairman of the Oil Companies Advisory Council, Adil Khattak highlighted the impact of the delay in decision-making arguing that the downstream oil sector comprising refineries and oil marketing companies are faced with an existential crisis which challenges not only their commercial sustainability but also poses a serious threat to national energy security.

The chairman of OCAC said that SIFC twice announced meetings but they were postponed due to other engagements. The Brownfield Refineries Upgradation Policy extended deadline is expiring on October 22, 2024, and there is no chance of refineries signing the Implementation Agreements if the issues are not resolved in time. It may be pointed out that the Refineries Policy took over four years in the making causing a loss of one billion dollars each year of delay. “Lack of timely action by the government entities may jeopardize $ 6 billion investment.”

He said that the government needs to understand that new investors would only come if the current investors feel comfortable with government policies. The OCAC letters to DG SIFC say that the US $ 6bn investment for the Brownfield Refineries Up-gradation Policy has been jeopardised because 1) the Refineries Policy took more than four years to make during which the country lost $1billion for every year of delay. Finally, when the refineries were prepared to sign the up-gradation agreements, the government amended the Sales Tax Act effectively disallowing claim of 80-85 pc of the input tax which makes existing refining operations unsustainable and the up-gradation projects unviable; 2) The unabated smuggling of petroleum products from Iran covering up to 20-25 pc of consumption has critically affected refineries sales forcing them to curtail production and leading to periodic shutdowns. Oil smuggling is also causing up to US$ 1 billion per annum revenue loss to the government besides serious environmental concerns due to abysmal poor quality.

While the HSD stocks are critically high, the refineries are struggling to operate due to low uplifting of the HSD production, imports have regularly been allowed in violation of OGRA rules which mandate uplifting from local refineries before opting for imports.

If this situation continues it may not only collapse the oil supply chain but would also make the refineries’ upgradation projects unviable. In desperation, the Oil Companies Advisory Council and the refineries have approached the Petroleum Division, FBR and OGRA but the urgency and criticality to take mitigatory actions have not been realized. It is now left with the only option to seek SIFC support to avail US$ 6bn investment in the upgradation of the refineries.