Oil Industry Warns of National Supply Disruption Over Sindh IDC Levy

Abdul Sami Khan, Chairman of the Oil Companies Advisory Council (OCAC), has cautioned that the Sindh Infrastructure Development Cess (IDC) imposed on petroleum imports threatens to paralyze the national oil supply chain.

Read More: OMAP Protests Sindh Cess Deduction Without Price Adjustment

Abdul Sami KhanChairman OCAC said in a letter to chief minister Sindh that the Governments of Sindh and Balochistan have imposed the Sindh Infrastructure Development Cess (IDC) on POL imports since 1994. The levy was challenged before the Sindh High Court (SHC), which initially granted a stay but later upheld the chargeability of IDC in 2021.

The industry appealed before the Supreme Court (SC), which suspended the SHC order but directed the true protection of sub judice bank guarantees continue. The oil industry, in view and past practice, did not furnish IDC guarantees, which was allowed by the relevant authorities to ensure continuity of Oil Supply Chain.

In July 2023, the Sindh Sales Tax & Excise Department again restored the requirement of submitting local taxes and levies declaration before Goods Declaration. Following interventions by MEFP and OGRA, an interim arrangement was reached allowing submission of undertaking instead of bank guarantees. While the matter remains sub judice – before the Supreme Court (Sindh) and the Balochistan High Court – the Government has however reinstated the requirement of producing Bank Guarantees for IDC at the time of Goods Declaration.

MEFP has reportedly emphasized to the provincial governments that petroleum pricing is a federal function, hence any applicable tax and KP Governments have exempted petroleum products from IDC under their respective laws.

The imposition of SIDC poses severe financial and operational risks to the downstream industry. Based on estimated cargo movements – worth billions of rupees per cargo – a single 40,000 MT vessel costs about USD 40 million). It is unsustainable given the industry’s limited credit lines vested submission of bank guarantees of IDC in banks and/or PRAs’ duties to regulated cost, which will have severe implication of clearance & lift of price of petroleum products to the government.

Moreover, POL cargoes that have discharged and those currently under discharge at the ports remain stuck for issuance of clearance, thus hampering the PSO’s ARAMCO import deal at Karachi and other refineries at Keamari locations clearance along with two HPPL’s ME vessels MT Hania Australia.

It is worth mentioning that M/s Bosic at Keamari are delaying and they have two M/S cargoes that recently discharged, while M/s Attock Horizon and PSO’s KH Taraq need to be urgently cleared from Customs for macro nationwide POL supply chain continuity. M/s cargo of W.E. M Energy and Bosic Cargo stand stranded at the 21st October at KPT will also face delays in the issue presently.

Any disruption in this critical juncture – amidst the ongoing agricultural season – risks a nationwide halt in POL supply chain, where recovery likely to take over two weeks. We urge immediate intervention to direct FBR and Customs to allow clearance of all POL cargoes without bank guarantees in the national interest and to safeguard national supply chain continuity. The situation requires a policy intervention from the federation in the pricing of petroleum products and establish exemption of petroleum products from IDC/SDC through proper rules.