CCoE refuses to approve Policy for refineries in Pakistan

Ibn-e-Ameer

Cabinet Committee on Energy (CCoE) did not approve the new refinery policy and decided to discuss it again next week due to objections on some points.

CCOE raised objections on some points regarding investment cash flow in a meeting held on Friday and decided to look into it again.

Therefore, it decided to take up again in a meeting next week.

The petroleum division had proposed the CCoE approve 10% tariff protection to the oil refineries in the new proposed Refinery Policy 2021. There are five refineries in Pakistan that are operating to process petroleum products.

Earlier, the petroleum division had tabled a policy draft offering incentives for existing and new refineries in Pakistan before the economic coordination committee (ECC).

However, ECC referred it to the cabinet committee on energy (CCoE).

Sources told Newztodays.com that Petroleum Division informed CCoE that there shall be tariff protection in the form of 10% import duty on Motor Gasoline and Diesel of all grades.

It will also apply to imports of any other white product used for fuel for any kind of motor or engine.

The tariff protection 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.

The government will give a mechanism for pricing regime for new Refinery projects which shall be no less favorable than the prevailing mechanism till deregulation.

Fiscal Regime

All new deep conversion oil refinery projects of a minimum of 100,000 BPD refining capacity, as well as infrastructure projects, will avail a 20-year income tax holiday of all taxes that start the construction of the project before December 31, 2025.

They shall be eligible for a 20-year income tax holiday of all taxes under the Income Tax Ordinance 2001, from the date of commissioning of the project.

The investors will also avail exemption from customs duties, surcharges, withholding taxes, or any other levies on the import of any equipment or material they use in the Projects of refineries in Pakistan without any precondition for certification by the Engineering Development Board.

There will also be an exemption for such projects from general sales tax, or any other Ad Valorem tax on the import of any equipment, or material they use.

Federal Government shall facilitate for similar exemption of provincial and local taxes.

Construction, Operations, and Engineering services performed in Pakistan, whether by local firms or foreign firms operating in Pakistan, as well as procurement of any local materials, shall remain subject to applicable local taxes, whether provincial or federal.

The government will exempt Projects from the application of the Companies Profits (Workers’ Participation) Act 1968 and the Workers’ Welfare Fund Ordinance 1971.

Federal Government shall facilitate similar exemption of provincial statutes if any to refineries in Pakistan.

Temporary imports by contractors/sub-contractors of all machinery, vehicles, plant and equipment, other materials and spares in connection with setting-up, operation, maintenance, and repair, which are to be repatriated after completion of the works, shall be exempted from all customs duties, taxes, surcharges, and levies on import.

The customs authority will release on the provision of a bond by the importer, for a defined time period of use.

Product Pricing Formula

The government will link the Product Pricing Formula of refineries with “True Import Parity Price” to derive from Arab Gulf Mean FOB spot price.

If they are not published, the government shall derive from Singapore Mean FOB price.

The government will also add all other elements including Premium, Freight, Port Charges, Incidentals, Import Duties, exchange rate, provincial taxes as applicable, and other price adjustments as per PSO actual imports, in the FOB price to arrive at True Import Parity Price.

Additionally, it will also add prevalent Inland Freight of imported crude oil to refineries and provincial duties, levies/cess, and taxes (with import duty on crude oil, if any) at the import of crude oil for refineries.

There shall be no import duties and Sales Tax on import of Petroleum Crude oil with effect from July 1, 2022, being the main raw material, by Refineries themselves in Pakistan.

The finished products, however, shall be subject to import duties and Sales Tax notified by the competent authority from time to time.

There will be no guarantee of the rate of return for existing, or new, refineries provided by the regulator or the Government of Pakistan.

The government will also refineries to open and maintain foreign currency accounts subject to fulfilling all regulations of the State Bank of Pakistan.

The government will allow the refineries to retain a certain portion of export proceeds in foreign currency, if any, to meet operational requirements, as notified by SBP from time to time.