Pakistan Oil Refinery Policy 2021 finalised

ISLAMABAD: The government has finalised the Pakistan Oil Refinery Policy 2021 with huge package of tax incentives, including 20-year income tax holiday for all taxes under the Income Tax Ordinance 2001 and upgradation of existing and new deep conversion refineries from the date of commissioning of the project. However, there will be no product off-take and rate of return guarantee for new and existing refineries.

And more importantly, the product pricing formula of refineries will be based on “True Import Parity Price” to be derived from the Arab Gulf Mean FOB (Freight On Board) spot price, or if not published will be derived from Singapore Mean FOB price, discloses the final draft of the policy. The new policy, once approved, will also be applicable to those potential investors who want to establish a world scale deep conversion refinery and petrochemical complex with investment of $10-15 billion in Pakistan.

Once the existing refineries give the commitment to the government by December 2021 for upgradation, they will be given tariff protection by six years to achieve the goal of Euro-V Mogas (petrol) and diesel. OGRA will monitor the upgradation and modernization projects and submit a quarterly work assessment report to the Petroleum Division based on the refinery's work plan.

The Refinery Oil Policy comprising 10 sections, highlighting the importance of the existing refineries and their upgradation, the need to install deep conversion refinery and petrochemical complex in the country with focus on way forward along with a framework of fiscal and regulatory regime, will be pitched in the next ECC meeting for approval, a senior official at the Energy Ministry told The News.

The much-awaited 58 pages and 8,342 worded oil refinery policy containing huge fiscal incentives and relaxation in duty structure with eight policy objectives to provide the enabling framework will lead to complete deregulation of the sector in till December 31, 2027, and once it gets approval from the federal cabinet, will be effective immediately. The policy will be implemented with the objective to evolve a fully deregulated market environment till December 31, 2027 with participation by all stakeholders.

Under the deregulated regime, oil marketing companies will be free to set the prices themselves, based on the quality of fuels location (including abolishment of the Inland Freight Equalization Margin).

And to facilitate investment by local and foreign investors, and for ease of doing business, approvals from various authorities should be managed through a one-window operation housed in the Ministry of Energy (Petroleum Division). And the existing relevant laws, rules, procedures and orders etc. will be amended by the relevant government bodies to reflect these policy changes. According to the policy, the product pricing formula of refineries will be based on “True Import Parity Price” to be derived from Arab Gulf Mean FOB spot price, or if not published shall be derived from Singapore Mean FOB price. All other elements including Premium, Freight, Port Charges, Incidentals, Import Duties, exchange rate, provincial taxes as applicable and other price adjustments will be added, as per PSO actual imports, in the FOB to arrive at True Import Parity Price.

Additionally, prevalent Inland Freight of imported crude oil to refineries and provincial duties, levies or cess and taxes (with import duty on crude oil, if any) at import of crude oil shall be added for refineries. And there shall be no import duties and sales tax on import of petroleum crude oil with effect from July 1, 2022, being the main raw material, by refineries themselves. The finished products, however, will be subject to import duties and sales tax notified by the competent authority from time to time.

And there will be no guarantee of rate of return for existing, or new refineries provided by the regulator or the Government of Pakistan.

Under the policy, there will be a tariff protection in the form of 10pc import duty on Motor Gasoline and Diesel of all grades as well as imports of any other white product used for fuel for any kind of motor or engine, effective from January 1, 2022 to December 31, 2027. The pricing regime for new refinery projects would be given a pricing mechanism, which shall be no less favorable than the prevailing mechanism till deregulation.

The government will not provide any product off-take guarantees. Refineries shall be allowed to sell products to any marketing company, including their own affiliates in marketing and distribution. However, import of finished products by OMCs shall be limited to only the projected deficit in accordance with provisions of Rule 35(g) of the Pakistan Oil Rules 2016, ensuring uplifting of local refined products first.

Locally produced crude will be allocated to the closest refinery that can handle crude with such specifications. Once allocated, the same may not be cancelled if a new refinery comes up closer to the crude source, unless mutually agreed amongst the existing user, new proposed user and the Petroleum Division, Ministry of Energy. After upliftment of local crude oil, if so allocated, the refineries will be free to import crude oil from any source except from prohibited countries, with no obligation or guarantee on the part of the Government of Pakistan. Refineries will be allowed export of surplus petroleum products, or products with specifications that do not have local demand under the intimation to OGRA and MEPD.

No refinery shall be allowed to market, in Pakistan, petroleum products of inferior quality than those notified by the Petroleum Division from time to time, unless it has a waiver from the Government of Pakistan. If it produces products with inferior quality and does not have a waiver to sell it locally, it shall be free to export the same.