Upgrade Stalls As Refineries Seek More Incentives

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The implementation of the refinery upgradation policy has hit a snag as refineries are lobbying for incentives to be extended even after their upgrades are completed.

The Oil and Gas Regulatory Authority (OGRA) has indicated reservations about granting such a leeway, reported a national daily. Notably, the agreements were expected to be finalized and signed by November 15, 2023.

Pakistan Refinery Limited (PRL) has signed its agreement with the regulator on schedule, but the remaining refineries won’t sign until their issues are rectified.

The government has extended the 2-month extension for agreements, and the Special Investment Facilitation Council (SIFC) has expressed concern about the delay and requested that all difficulties be resolved on time by the appropriate authorities.

Refineries explained that the reason why PRL has already signed the agreement is because it has the potential to produce 24,000 tons of petrol per month. When production increases, it will receive $400 million for its improvement project. However, Attock Refinery Limited, which can produce 50,000 tons of gasoline per month, will receive $700 million for its improvement project, and other refineries will also receive a large portion of the incentives.

They said PRL cannot afford to postpone even one day in order to qualify for incentives, which is why it signed the deal so that the upgrade work on its facilities can start on priority.

Also, local refineries claimed that the government has provided incentives to investors for establishing the newly branded green refinery, including 7.5 percent deemed duty for 25 years and a 20-year tax break. However, when it comes to local refineries, the incentives are fairly limited, at 25 percent of the cost of upgrading. They claim that after 46 percent taxation, the net incentives will be only 13 percent.

Refineries are requesting that the authorities add an arbitration clause in their agreements in the event of a dispute. They claim that the arbitration should be conducted in accordance with the law, but that the arbitrators should be chosen after consultation with the refinery in question and the authorities. As per OGRA, such a rule is not a part of the policy.

More details suggest that refineries want contract termination and force majeure options in their contracts. They claim that if the government fails to meet its obligations for an extended period of time, each refinery should be allowed the opportunity to terminate the agreement. However, OGRA officials claim that stipulations regarding contract termination and force majeure are not included in the brownfield refinery policy.

The refineries are also protesting the issue of taxation, claiming that 46 percent taxation on incentives will reduce the impact of an incentive package to 13 percent rather than 25 percent.



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