The government has finalized a new petroleum refining policy with an incentive package for setting up deep conversion refineries, reported Dawn news.
The package involves a 20-year tax holiday, along with a nine-year cascading customs duty reduction in pricing. However, the incentives will be only for projects of a minimum of 100,000 barrels per day (BPD) refining capacity and only for the investors who sign construction agreements before December 31, 2021.
All the above incentives would also be available to the existing refineries as an incentive to upgrade and modernize their refineries. However, they would also have to secure government approval for expansion or upgradation before December-end.
The newspaper report added that the policy in concern has been formulated after taking input from the local refining industry, and would be presented to the Economic Coordination Committee (ECC) of the cabinet for approval soon.
The refineries eligible for these incentives will be exempt from customs duty, withholding tax, or any other levy on import of any equipment to be installed or material to be used in the refinery without certification by the Engineering Development Board (EDB).
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They would also avail exemption from general sales tax or any other ad valorem tax on the import of equipment to be installed or materials to be used in the refinery before commissioning.
However, the government will not guarantee product off-take, and refineries would be free to market their products through their own or other marketing companies or export after meeting local needs. The other related industries and activities – including construction, operations, engineering services, and procurement of any local materials – will be subjected to all applicable local taxes.
The policy aims to make all oil marketing companies (OMCs) free to set the prices themselves, based on the quality of fuels, the location, and other services being provided. However, the government would set the price for pumps of Pakistan State Oil to give protection to the consumers.
Currently, Pakistan’s oil refining capacity is about 20 million tons per annum. The rest is imported. Moreover, eighty percent (or four out of five), local refineries are obsolete. Even the remaining 20 percent are decades old, as no new refinery has been established in the past ten years or so, and neither any refinery has been upgraded.
With the new policy, the aim is to shift to complete deregulation of the oil sector, including products and pricing, by June 30, 2026. This is also the deadline for upgrades of existing refineries to allow the benefit of competitive forces to pass the benefit on to the consumers.
