The Executive Committee of the Special Investment Facilitation Council (SIFC) ordered the Petroleum Division to find a way to proceed within a week to kickstart $5-6 billion worth of upgraded projects for local refineries.
These Refinery upgrades will target Euro V-compliant POL production. Federal Minister for Planning and Special Initiatives Ahsan Iqbal authorized the committee meeting.
Authorities decided to increase the inland freight equalization margin (IFEM) by Rs2.5 per liter on petrol, diesel, kerosene, and light diesel oil. The income revenues will shift to ESCROW accounts, allowing refineries to utilize the funds under an incentive package.
The amount would be used to upgrade all other projects. However, this would be a temporary arrangement until the next budget is decided.
In the SIFC meeting, Ogra is asked to work out the impact of an increase in IFEM. To this end, the Petroleum Division will prepare a summary that will be pitched to the ECC for approval.
In spite of this, Parco, which holds a 48% market share, is not at all in favor of increasing the IFEM, stating that it is an ad hoc arrangement. It says the government is required to eliminate the anomaly of sales tax through the market’s budget.
In the midst of the arguments, the official was found after the government failed to resolve the issue of the sales tax exemption on POL products imposed in the budget for FY25.
This has prevented the refineries from signing the implementation agreement with Ogra, which is essential prior to initiating their respective upgrade projects of $5-6 billion.
Upgrading these refineries will ensure minimum furnace oil production and maximum output of finished POL products on par with the Euro V specifications.
The refineries state that the sales tax exemption has nullified the incentive package of $1.65 billion offered through the ESCROW account, leading to a $1.152 billion loss due to the impact of the sales tax exemption.
According to the official, they argue that this alteration has made their upgrade projects economically unsound and unsustainable.
The shift from zero-rated status to exempt status for sales tax on MS, HSD, kerosene oil, and LDO will increase the cost of the upgrade project manifold.
The official said that the SIFC meeting showed things the other way around. He appreciated the endeavors of the Petroleum Division, its team, and the 20-member task force headed by Deputy Prime Minister Ishaq Dar for finalizing and getting approved.
Also, the consensus implementation framework from Ecnec to enforce the amended E&P policy 2012 allows the private sector to purchase 35% of gas from new gas discoveries at auctioned prices.
However, to make the JJVL LPG plant operation possible, Sui Southern said it was working on the new structure, but it has not been finalized yet. Since the federal minister for petroleum was not present at the meeting, the SIFC decided to halt his issue until December 31.
“Likewise, the issues of Cenergyico Pk Limited on petroleum and supply of gas to the National Steel Complex is also at rest till December 31, 2024.”
