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Petroleum Division revises incentives for refineries

Petroleum Division revises incentives for refineries
October 14, 2021 Web Desk

Sohail Iqbal Bhatti

ISLAMABAD – Following in principle approval of Cabinet Committee on Energy (CCoE), the Petroleum Division has made significant reduction in the incentives of local refineries ostensibly owing to the opposition of three federal ministers and upcoming CCoE will take decision in this regard.

Well-informed sources said that the petroleum division has prepared a new draft incentive package for the refineries of the country under which the government has ended 10 percent income tax exemption and also decreased spending of the collected deemed duty in refinery upgradation project only. And, the next CCoE will take up proposed incentives for refineries of the country and it is expected that this meeting will grant an important approval in this regard.

“Interestingly, government had already approved 10% upfront tariff for the existing tariff in budget 2021-22,” said sources.

They added that energy minister should consult other federal minister like finance, maritime affairs etc prior to presenting a new summary before CCoE.

The sources said that petroleum division has suggested some changes in the incentives for refineries and capped incentives at 30 instead of the previous 40% of the project cost, while 10% tariff protection for the existing refineries on motor gasoline and diesel with the construction of up-gradation projects before December 31, 2025 and abolishing 10 year tax holiday for existing refineries only etc.

Sources also said that the Cabinet Committee on Energy (CCoE) while approving the Oil Refinery Policy 2021 in principle had earlier raised questions over proposed incentives for refineries of the country.  Even, Energy Minister also opposed this policy especially some proposed incentives. The CCoE also questioned the use of incremental revenue, utilisation of deemed duty by refineries and the collection of revenue and its utilisation if the government allowed 10 percent tariff protection. The CCoE further directed the Petroleum Division to revisit the proposed incentive package.

Sharing details of incentives for refineries under new oil refining policy 2021, sources said that there will be tariff protection in the form of 10percent import duty on motor gasoline and diesel of all grades and imports of any other white product used for fuel for any motor or engine while it will be effective from the date of the commission for six years, provided that the refinery starts construction of the project before December 31, 2025. Similarly, there will be no import duties and sales tax on import of petroleum crude oil with effect from July 1, 2022, being the primary raw material. However, the finished products shall be subject to import duties and Sales Tax notified by the competent authority from time to time.

It is also learnt from available draft Pakistan Oil Refining Policy 2021 that the government would give the pricing regime for new refinery projects a pricing mechanism that shall be no less favorable than the prevailing mechanism till deregulation.

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