ISLAMABAD: Pakistan’s four major oil refineries have mounted a strong challenge to a government proposal to retrospectively reduce the deemed duty on high-speed diesel (HSD).
They have contended that any such move will amount to penalising the industry for delays caused entirely by the government’s own failure to implement the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023.
In a joint representation submitted to the secretary, Petroleum Division after a June 23 meeting chaired by the minister for energy (Petroleum Division), the chief executives of Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL) and Cnergyico PK Limited (CPL) opposed any reduction in HSD tariff protection from 7.5 per cent to 5.0 per cent or retrospective recovery of the 2.5 per cent deemed duty. They argued that the policy’s implementation framework clearly shows that the refineries fulfilled every obligation required of them within the stipulated timelines, while execution of the Upgrade Agreements remained pending because the government never arranged their signing.
The representation directly challenges the basis for the proposed retrospective adjustment, maintaining that the delay did not arise from any unwillingness, omission or default by the refineries. Instead, it says, the implementation process stalled because the Petroleum
Division failed to execute the agreements within the prescribed timelines, after which the Finance Act 2024 fundamentally altered the fiscal assumptions on which the refinery upgradation policy had originally been approved.
To support their case, the refineries have relied largely on official government correspondence. According to the representation, PRL signed its Upgrade Agreement in November 2023. NRL submitted duly initialled Upgrade and Escrow Agreements together with all required documents on March 22, 2024. ARL followed on March 25, 2024 by submitting two original Upgrade Agreements and three Escrow Agreements while informing the Oil and Gas Regulatory Authority (Ogra) that the mandatory Rs1 billion bank guarantee would be furnished on the date of signing.
Cnergyico also informed Ogra through its letter dated April 18, 2024 that its Board of Directors had approved both the Upgrade Agreement and Escrow Agreement and confirmed its readiness to execute the documents, requesting the regulator to announce a signing date.
Despite these steps, the representation states, none of the refineries was invited to execute the agreements, although all had completed the required formalities within the prescribed deadlines. It also points out that NRL has already commenced production of Euro-V (Pak-V) compliant High-Speed Diesel.
The refiners have also cited two letters issued by Ogra on April 3 and April 4, 2024 as evidence that the regulator itself had informed the Petroleum Division that ARL, NRL and PRL were ready to sign the Upgrade Agreements and requested the ministry to coordinate the signing ceremony.
In its April 4 communication, Ogra further warned that the deadline for opening the mandatory joint escrow accounts was April 22, 2024 and noted that the National Bank required at least one week to complete the account-opening process, requesting the Petroleum Division to arrange the signing ceremony without delay.
The representation further refers to the Petroleum Division’s own summary submitted to the Cabinet Committee on Energy (CCoE) on May 2, 2024, in which the ministry acknowledged that ARL, NRL and PRL had conveyed their readiness to sign the Upgrade Agreements. The same summary proposed extending the signing deadline by six months from April 22, 2024, after noting that PARCO was still updating the feasibility of its upgrade project while Cnergyico was negotiating settlement of outstanding petroleum levy dues with the government.
According to the refineries, the Petroleum Division itself acknowledged in the summary that failure to sign the agreements by the deadline would automatically reduce the prevailing deemed duty on HSD from 7.5 per cent to 5.0 per cent.
The companies argued that these official records demonstrate that the delay was administrative rather than industrial. They further pointed out that while they were awaiting execution of the Upgrade Agreements, the Finance Act 2024 converted motor spirit (petrol), high-speed diesel, kerosene and light diesel oil from taxable supplies into exempt supplies under the Sales Tax Act, 1990. This, they said, fundamentally changed the commercial assumptions on which the refinery policy had been approved and required stakeholders to revisit the implementation mechanism.
Despite these developments, the companies said they remained fully engaged with the Petroleum Division, Ogra and other stakeholders and repeatedly reaffirmed their commitment to undertake the investments envisaged under the refinery upgradation policy.
The representation also disputes the perception that domestic refineries continue to enjoy substantial tariff protection.It recalls that the Tariff Protection Formula (TPF), introduced on July 1, 2002 after replacing the Guaranteed Return Pricing Formula, was designed to strengthen Pakistan’s energy security by providing domestic refineries with a reasonable level of tariff protection, encouraging long-term investment and enabling them to compete with integrated regional and international refineries without relying on government subsidies.
Initially, the TPF allowed a deemed duty of 10 per cent on HSD and 6.0 per cent on kerosene, light diesel oil (LDO) and JP-4. However, from August 1, 2008, the deemed duty on HSD was reduced to 7.5 per cent, while the protection on kerosene, LDO and JP-4 was withdrawn altogether. the Finance Act 2024 fundamentally altered the fiscal assumptions on which the refinery upgradation policy had originally been approved.
To support their case, the refineries have relied largely on official government correspondence.According to the representation, PRL signed its Upgrade Agreement in November 2023. NRL submitted duly initialled Upgrade and Escrow Agreements together with all required documents on March 22, 2024. ARL followed on March 25, 2024 by submitting two original Upgrade Agreements and three Escrow Agreements while informing the Oil and Gas Regulatory Authority (Ogra) that the mandatory Rs1 billion bank guarantee would be furnished on the date of signing.
Cnergyico also informed Ogra through its letter dated April 18, 2024 that its Board of Directors had approved both the Upgrade Agreement and Escrow Agreement and confirmed its readiness to execute the documents, requesting the regulator to announce a signing date.
Despite these steps, the representation states, none of the refineries was invited to execute the agreements, although all had completed the required formalities within the prescribed deadlines. It also points out that NRL has already commenced production of Euro-V (Pak-V) compliant High-Speed Diesel.
The refiners have also cited two letters issued by Ogra on April 3 and April 4, 2024 as evidence that the regulator itself had informed the Petroleum Division that ARL, NRL and PRL were ready to sign the Upgrade Agreements and requested the ministry to coordinate the signing ceremony.
In its April 4 communication, Ogra further warned that the deadline for opening the mandatory joint escrow accounts was April 22, 2024 and noted that the National Bank required at least one week to complete the account-opening process, requesting the Petroleum Division to arrange the signing ceremony without delay.
The representation further refers to the Petroleum Division’s own summary submitted to the Cabinet Committee on Energy (CCoE) on May 2, 2024, in which the ministry acknowledged that ARL, NRL and PRL had conveyed their readiness to sign the Upgrade Agreements. The same summary proposed extending the signing deadline by six months from April 22, 2024, after noting that PARCO was still updating the feasibility of its upgrade project while Cnergyico was negotiating settlement of outstanding petroleum levy dues with the government.
According to the refineries, the Petroleum Division itself acknowledged in the summary that failure to sign the agreements by the deadline would automatically reduce the prevailing deemed duty on HSD from 7.5 per cent to 5.0 per cent.
The companies argued that these official records demonstrate that the delay was administrative rather than industrial. They further pointed out that while they were awaiting execution of the Upgrade Agreements, the Finance Act 2024 converted motor spirit (petrol), high-speed diesel, kerosene and light diesel oil from taxable supplies into exempt supplies under the Sales Tax Act, 1990. This, they said, fundamentally changed the commercial assumptions on which the refinery policy had been approved and required stakeholders to revisit the implementation mechanism.
Despite these developments, the companies said they remained fully engaged with the Petroleum Division, Ogra and other stakeholders and repeatedly reaffirmed their commitment to undertake the investments envisaged under the refinery upgradation policy.
The representation also disputes the perception that domestic refineries continue to enjoy substantial tariff protection.It recalls that the Tariff Protection Formula (TPF), introduced on July 1, 2002 after replacing the Guaranteed Return Pricing Formula, was designed to strengthen Pakistan’s energy security by providing domestic refineries with a reasonable level of tariff protection, encouraging long-term investment and enabling them to compete with integrated regional and international refineries without relying on government subsidies.
Initially, the TPF allowed a deemed duty of 10 per cent on HSD and 6.0 per cent on kerosene, light diesel oil (LDO) and JP-4. However, from August 1, 2008, the deemed duty on HSD was reduced to 7.5 per cent, while the protection on kerosene, LDO and JP-4 was withdrawn altogether.
