Refineries saved from further losses
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New Petroleum Minister Ali Pervaiz Malik has come to the rescue of oil refineries, which are facing losses of billions of rupees, in a move that will pave the way for investment of up to $6 billion in the refining sector.
After becoming the petroleum minister, Malik also took measures to fully implement the facility of 35% allocation of locally explored gas to third parties.
The issue had been pending for several years. The delay in implementing the Brownfield Refineries Policy 2023 had affected timelines for plant upgrade projects of the refineries, which sparked concerns among foreign investors and prevented them from making fresh investment.
In the Finance Act 2024, petroleum products – motor gasoline (Mogas or petrol), high-speed diesel (HSD), kerosene oil and light diesel oil (LDO) – have been classified as "exempt". As a result, the refineries and oil marketing companies have to bear the cost of input sales tax (estimated at Rs34 billion for financial year 2024-25) and it cannot be recovered through product prices, which are regulated and fixed by the Oil and Gas Regulatory Authority.
During the recent revision in oil prices, the government allowed refineries to charge Rs2.09 per litre on HSD and Rs1.09 per litre on petrol in order to recover Rs34 billion worth of losses over 12 months.
The oil industry has hailed the decision and has given credit to the new petroleum minister and the petroleum secretary, who pleaded their case before the Economic Coordination Committee (ECC) and the prime minister for its resolution.
Attock Refinery CEO and OCAC Chairman Adil Khattak told The Express Tribune that the petroleum minister had been very helpful in resolving the loss recovery issue with full support from the petroleum secretary.
However, he said the sales tax exemption matter should be permanently resolved in the upcoming budget, adding that the current decision of the government to recover the losses of refineries and the resolution of GST issue would help secure investments of $6 billion in upgrading the refining sector.
Pakistan Refinery Limited (PRL) was the first victim of the delay in implementation of the refinery policy because it failed to woo foreign investors for modernising its plants.
It floated a tender to attract a contractor and financing for plant upgrade. The deadline for the tender was in December, but Chinese investors refused to participate until the government addressed the issues faced by the refineries.
In the first tender, not a single investor participated in bidding. PRL has floated the tender for the second time, where the last date for submitting bids is May 30. However, industry officials say they are not hopeful that any investor will participate. Refineries are considered strategic national assets that play a vital role in energy security and economic development.
Pakistan's refineries produce diesel in accordance with the specifications notified by the Ministry of Energy (Petroleum Division). The import of a single HSD cargo costs approximately $45 million, which is an unnecessary burden when adequate local supplies are available.
The upgrading projects will help double diesel production in the country. Over the years, the refineries have been investing in modernisation, including capacity expansions and installation of Isomerisation and Diesel Hydro Desulphurization (DHDS) units, enabling them to improve fuel specifications.
Currently, Pakistan's refineries produce HSD with sulphur content ranging from Euro I to Euro V. A refinery already produces the Euro V-compliant diesel, two refineries supply Euro III fuel and the remaining produce diesel with sulphur content of around 5,000 ppm, far lower than the reported figure of 10,000 ppm.
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