The government has finalized the draft policy for upgrading the local refinery backdrop with which a 10 percent protective tariff on petrol and diesel would be extended to existing refineries in the form of inland equalization freight margin (IEFM) for six years.
The amount will cater to 25-30 percent of the upgradation cost to be incurred by the refineries. This means that refineries would arrange themselves the finances of 70-75 percent required for their upgradation in six years, reported a national daily.
The draft will be soon sent to the Economic Coordination Committee of the federal cabinet for approval.
The draft will be made official once the technical and financial model talks with the Kingdom of Saudi Arabia (KSA) conclude successfully. Pakistani authorities are in contact with KSA experts to work out a win-win situation. After that, the draft for new refineries would be finalized and approved.
It is worth mentioning that Saudi Aramco is seeking a 7.5 percent deemed duty for 25 years and 20 years tax holiday for a mega new refinery with a capacity to refine 350,000-400,000 barrels of crude per day.
Per the upgrade plan, local refineries will meet Euro-5 specifications in the country in six years. However, in addition to receiving petrol and diesel with Euro-5 specifications, local players like Pakistan Refinery Limited (PRL) may seek to increase their capacity to refine crude to 100,000 barrels per day from the current 50,000 BPD.
More importantly, the upgraded plan would promulgate the Oil and Gas Regulatory Authority (OGRA) to monitor project progress for ensuring that the proceeds are only used for upgradation, and refineries will provide a bank guarantee worth Rs. 500 million until the projects’ commercial operations begin.
Dividend payments and loss adjustments from the Special Reserve Account (cash reserve of refineries) will be prohibited. Resultantly, there will be no import duties or sales tax on crude oil, which is a key raw material used by local refineries.
