The petroleum division has prepared the summary for the new
oil refining policy 2023 involving upgradation of the existing
refineries.
The summary was circulated to the Finance Fivision, Ministry
of Planning, Development and Special Initiative, Federal Board of Revenue (FBR)
and Oil and Gas Regulatory Authority (OGRA) for seeking their input.
This is a positive development for establishing a proposed
refinery in the country worth around US$10 billion dollars with the cooperation
of Saudi Arabia.
Petroleum
products contribute 31% to the energy mix of Pakistan with an overall contribution
of around 11 million tons Per Annum (inclusive of 30% local crude
processing) while the remaining 69% of the country’s demand has to be met with
imports.
Indigenous and imported crude is refined by five local
refineries which have been periodically upgraded to meet local fuel
specifications.
The
upgradation of refineries included setting up of Diesel HydroDesulfurization
(DHDs) to reduce Sulphur from diesel and isomerization plants for enhancing the
production of Motor Spirit (Petrol) at a combined cost of around PKR75 billion.
The
government has been emphasizing local refineries to further up-grade their
plants by producing Euro-V specification fuels and minimizing production of
furnace oil, however it requires capital investment of around US$4.5 billion.
This would require refineries to arrange funding from either
their own resources and or borrowing from lenders at commercial terms. To
obtain the required funding, refineries will have to improve their balance
sheet, according to sources.
The five year profit/loss position of refineries indicates
that the sector needs fiscal support from the government to improve the
financial position for upgradation purposes.
In case
of no intervention by the government, the local refining industry might be at
risk of collapsing according to some speculators.
In such a case the domestic crude oil production of
approximately 70,000 barrels per day by the country’s Exploration and
Production (E&P) companies would have to be exported and more expensive
refined petroleum products would have to be imported.
Such a scenario might discourage investment in exploration
of the oil and gas sector, apart from creating vulnerability in the supply
chain of strategic fuels and placing additional burden on the country’s balance
of payments.
In
October 1997, the government introduced the Petroleum Policy 1997 (amended in
2002), which replaced the minimum 10% guaranteed rate of return for refineries
with tariff protection formula/deemed duty (10% on high speed diesel, 6% on
Kerosene oil, light diesel oil & JP-4). In 2008 tariff protection was
reduced to 7.5% on HSD only.
Given the tariff protection could not attract investment in
the sector, it is therefore required to be improved. Accordingly, an Energy
Sub-Group of the Advisory Committee of the Planning Commission was constituted
which made recommendations in April of 2021, with regard to investment in the
refinery sector through government support including product pricing policies,
tax structure etc.
In view of the above, the Petroleum Division prepared a
draft Pakistan Oil Refining Policy for new and existing refineries which was
discussed in CCoE meetings. The committee through its decision dated 13th
September, 2021, provided guidelines to improve the policy document, therefore,
the policy has been revised, said the sources.
The establishment of a new refinery requires considerable
lead time and huge investment for which a policy along with attractive
incentives needs to be in place.
In case of existing refineries, necessary changes have been
incorporated in the policy after deliberation with the refineries and
government bodies.
The
draft Pakistan Oil Refining Policy 2023 for upgradation of existing refineries
is submitted for the consideration and approval of the ECC whereby certain tax
exemption and tariff protection incentives have been proposed as provided at section-6
of the proposed policy.
