No more guaranteed rate of return available for three oil refineries
ISLAMABAD: The Petroleum Division has decided to abolish in the revised draft Pakistani Refinery Policy 2021 the guaranteed minimum rate of return of 10% for the National Refinery (NRL), the Pakistan Refinery (PRL) and the Refinery of Attock (ARL) allowing market competition through the tariff protection formula (deemed duty).
PARCO and Byco will also benefit from the same tariff protection regime without guarantee of product withdrawal and return rate. More importantly, there will be no 10-year tax exemption for local refineries and the government’s contribution to upgrading local refineries will now be 30 percent in the form of tariff protection compared to the contribution. previously proposed at 40 percent. However, 70 percent of the investment will be made by the refineries with the aim of continuing the upgrade to guarantee Euro-V gasoline and diesel.
According to the summary titled Tariff Protection (Deemed Duty) for Refineries prepared for the approval of the CCOE, the government contribution of 30% for the upgrade will be managed by the duly import of 10% Ad valorem on the import of HSD and 5pc Ad valorem plus the lpc surcharge on the importation of kerosene, light diesel and JP-4 is proposed. However, the excise duties on these products are removed and the oil exploitation tax is reduced in order to minimize the impact of this measure on retail prices.
The 50pc of after-tax net profit will be diverted to a special reserve account to offset any future loss or invest in refinery expansion or modernization.
The CCOE which met on September 13, 2021 approved the Pakistan Refinery Policy 2021 as part of the establishment of new refineries in the country. The petroleum division was invited to present a workable plan for the sustainability and modernization of local refineries. The September 13 CCOE also called for more clarity on the use of revenue streams resulting from tariff protection on compensatory losses instead of upgrading in the past.
The intention of the 2002 Tariff Protection Policy was to provide a reasonable margin to refineries so that refineries could primarily carry out their normal activities while encouraging them to manage losses and modernize refineries with the establishment of a debit account. special reserve.
As a result, the refineries managed the operation of the refineries themselves and also modernized them during the period 2002-2020. According to the summary, for 18 years, the refineries under the 2002 refinery policy obtained 237 billion rupees as deemed duty, of which the refineries used 191 billion rupees for modernization and the remaining amount of 38 billion rupees was used by them to make up for their losses. The summary also highlighted the details of the financial audit, carried out by the refineries since its inception through a reputable independent audit firm. Pakistan Auditor General’s Office also reviewed the details of deemed duty deduction / use for the period 2002-2018. In addition, ENAR Petrotech Services Ltd also carried out a technical audit in 2016 on the management of the Petroleum Division in order to assess whether the refineries have modernized their factories by installing units for the isomerization of naphtha and hydro-desulfurization of diesel. .
The Pak Arab refinery, according to the summary, during the period 2002-2020, as part of the refinery policy of 2002, collected alleged duties of 76 billion rupees, of which 66 billion rupees was used for diesel isomerization and hydro-desulfurization units and capacity improvement projects and the remaining amount of Rs 10 billion has been used to cover its losses. Likewise, Attock Refinery Limited (ARL) got 47 billion rupees, of which 26 billion rupees was spent on isomerization, DHD and pre-flash units. The remaining amount of Rs21 billion was consumed by ARL to compensate for its losses. National Refinery Limited (NRL) received 40 billion rupees. Of this amount, NRL used 37 billion rupees to head isomerization and DHD and capacity improvement. Pakistan Refinery Limited (PRL) got 36 billion rupees and only used 17 billion rupees for isomerization, crude storage and power plant. Byco also got 38 billion rupees under the leadership of Deemed Duty in 18 years, but spent 53 billion rupees to install the isomerization plant, reforming unit and setting up the SPM plant. (single point mooring). BYCO spent more on the alleged duty of Rs 38 billion by organizing funds from its own resources.