ISLAMABAD: Oil refineries are ready to sign long-delayed agreements to upgrade their plants but some have objected to a new penalty requiring them to surrender 2.5 per cent of retained deemed duty on diesel, saying the billions of rupees in charges stem from delays for which they were not responsible.
The refineries welcomed the government’s amended Brownfield Refinery Policy and said they are prepared to proceed with the agreements despite their objection to the penalty.The policy, initially approved in August 2023 and amended twice since, is aimed at attracting investment to modernise Pakistan’s aging refining infrastructure. Petroleum Minister Ali Pervaiz Malik has said that the agreements will be finalized soon and Secretary Petroleum is hopeful to get these signed by the end of August.
Unlike the previous arrangements, the new agreements will be signed with Interstate Gas Systems (ISGS), under the Petroleum Division, rather than the Oil and Gas Regulatory Authority (Ogra) as planned earlier.
Adil Khattak, CEO of Attock Refinery Ltd and chairperson of the Energy Committee of the Overseas Investors Chamber of Commerce and Industry (OICCI), said that Attock Refinery and National Refinery completed key formalities before the earlier deadline of October 22, 2024, including initialing agreements with Ogra, securing board approvals and arranging Rs1 billion bank guarantees each.
“If the delay has been caused, we are not responsible for the delay, but the government is still insisting that we have to pay back the 2.5 per cent deemed duty, which runs into billions,” Khattak told The News.
Under the amended policy, refineries will have to return 2.5 per cent of the deemed duty retained on diesel between the earlier deadline and the signing of the new agreements. Khattak said the financial impact of the penalty is significant.
“Every day of delay is costing ARL alone a penalty of Rs7.5 million, for a delay for which we are not responsible,” he said.Despite the dispute, Khattak said the refineries support the policy and appreciate the petroleum minister’s efforts to remove the hurdles that have stalled the upgrade programme.
The Petroleum Division shared draft upgrade agreements with refineries on Thursday. Consultations are expected to continue with the Ministry of Finance, Controller of Accounts and ISGS before the documents are finalised.
“Our protest, or whatever you may call it, regarding the penalty which has been unfairly imposed on us, remains. But that will not stop us from signing the agreements,” Khattak said.The refineries argue that the penalty could undermine the investment climate at a time when Pakistan urgently needs to modernise its refining sector and reduce dependence on imported petroleum products.
Khattak estimated that every year of delay in upgrading domestic refineries cost Pakistan about $1.5 billion through higher fuel imports and related foreign exchange outflows.He said modernisation is also becoming increasingly important from an energy-security perspective following recent disruptions in international energy markets. The government has also realised the strategic importance of local refineries and its important role in the energy security of the country.Attock Refinery has already mostly completed front-end engineering work, while discussions with banks for financing the upgrade have also begun, he said.
