Local refineries are seeking early opening of joint Escrow Accounts to hold capital expenditure for financing upgrade projects.
Oil and Gas Regulatory Authority (OGRA) and refineries will meet on Wednesday to discuss the terms for opening the joint escrow accounts under the newly launched Brownfield Refinery Policy, reported a national daily.
The local refineries are eager to have the joint shared accounts opened as soon as possible to prevent potential losses that could arise if these accounts are not opened on time.
These accounts would be operated according to the terms and circumstances stipulated in the Escrow Account Agreement between OGRA, the National Bank of Pakistan (NBP), and the refinery.
Pertinently, an escrow account is where funds are held in trust whilst two or more parties complete a transaction. This means a trusted third party will secure the funds, which will then be disbursed to the beneficiaries after they have fulfilled their side of the agreement.
The new Brownfield Refinery Policy allows the authorized refinery that is buying plant, machinery, and equipment (PME) for the upgrade project to withdraw up to 22 percent of the total project cost from the shared Escrow Account. Meanwhile, eligible refineries importing new PMEs would be allowed to withdraw 25 percent of the total upgrade cost.
The distribution of funds from the joint Escrow Account would be pro-rata, with a maximum limited limit of 22 percent or 25 percent, depending on the case, from the joint Escrow Account and the remainder from the refineries’ own resources.
OGRA will enable a maximum withdrawal of the capped limit of the refinery’s upgrade project cost, as established by the final investment decision (FID). If the funds deposited in the joint Escrow Account are less than the respective capped limit of the expenditure made on a milestone/deliverable and/or overall upgrade project basis, OGRA/the government of Pakistan will have no obligation/responsibility to make up for it.
Moreover, OGRA will have the authority to withdraw funds at any time. The funds in the Escrow Account will be used solely for capital expenditure and not be used as a charge, lien, collateral, or other borrowing instrument.
Refineries would make deposits of incremental incentives obtained in a given month within 10 days of the new month. In case of non-payment, interest will be charged at the rate of one-month KIBOR + 3 percent and calculated for the actual number of days for which the relevant amount remains unpaid. If the default continues beyond 30 days, the refinery will be ineligible to claim any funds from the joint account.
If the default lasts more than 60 days, the joint Escrow Account will be seized, and refineries will lose the right to produce and distribute their goods. It is understood that all such cases will stand dropped if refineries fulfill their commitments to the government in exchange for full utilization of the shared funds.
