ISLAMABAD: A Senate panel on Friday ordered an end to the decades-old indefinite protection to local ‘inefficient’ refineries through “deemed duties” in petroleum prices at the cost of public exchequer and the public at large.

The Senate Standing Committee on Petroleum, chaired by Senator Mohsin Aziz of PTI, sought full details of benefits earned by domestic refineries. On the occasion, two invitees — a former official of Pakistan State Oil (PSO) Tariq Akbar and former member Energy Planning Commission Shahid Sattar — estimated that some Rs500 billion have gone into refineries’ pockets.

Minister for Petroleum Ghulam Sarwar Khan promised that the new government would seriously examine oil pricing and correct any wrongdoings for future.

Mr Akbar alleged that the military-led government in 2002 allowed deemed duties on four major petroleum products at 10-13 per cent to domestic refineries for three years — on the pattern of customs duty on imported products — as an incentive to help them develop infrastructure. He said that former prime minister Shaukat Aziz had ordered gradual elimination of deemed duties within the next two years in 2006. However, the 7.5pc deemed duty on high speed diesel was still continuously going to the refineries to date.

Senate panel wants ‘deemed duties’ eliminated, claims Rs500bn pocketed by refiners through it

Mr Sattar seconded that the deemed duty on petroleum products should have come to an end in 2006 but it has been going on and on as extensions were repeatedly granted each time for 2 years by the Economic Coordination Committee (ECC) of the Cabinet over the next 12 years.

Mr Akbar said the refineries should have earned Rs1bn per annum on the basis of their paid up capital during last decade as they earned Rs37bn a year. He said that the suppliers of oil products through imports were earning profits with better quality diesel containing 0.5pc sulphur and the government charged customs duty that went to the government kitty. However, the deemed duty for local products did not reach public exchequer and rather went to refineries which produced a poor quality product containing 1pc sulphur. “We have been subsidising a bad product out of consumers’ pockets and to their disadvantage,” he said.

However, these allegations were contested by Acting Director General Oil Azam Khan who said that deemed duty was allowed to refineries to keep them afloat otherwise these would have closed down due to losses. He said the refineries also upgraded through isomerisation and dehydration plants.

The committee chairman and other senators believed the protection to even strategic industries should be for a limited period like 2-3 or 10 years to help them modernise and become profitable. The duty should not be allowed forever to incentivise inefficiency and corruption. Senator Aziz said that it was ironic that Pakistani public was suffering due to poor quality domestic production in the oil sector as well as the automobile industry that made a killing through a deletion programme.

According to an ECC decision taken on March 8, 2013, refineries — including National Refinery Limited, Pakistan Refinery Limited and ARL — had to deposit their profits above 50pc of the paid-up capital (along with the accumulated unutilised balance) in a special reserve account. However, instead of shifting the amount in special reserves to an Escrow account, they spent the entire special reserves on upgrading the refineries, the committee was told.

Secretary petroleum said that problems which were not addressed during the last ten years would be taken up. There would be improvement in oil and gas exploration activities in Balochistan province during the next six months, he added.

The petroleum minister said a task force was being set up to address issues in oil and gas exploration activities. He stressed that the 18th Amendment was not being followed in true spirit.

It was also informed that the committee would review the performance in oil and gas exploration every six months and information would be provided about the blocks awarded to local and foreign companies in Balochistan.

Senator Mir Kabir said that minerals were being explored in Balochistan but the provincial government was not getting its due share. The Balochistan government was receiving only 2pc share in Saindak project and amount of this share was not also being paid, he added

LNG deal with Qatar

The committee was informed that the National Accountability Bureau (NAB) was probing the Liquefied Natural Gas (LNG) deal with Qatar. Senator Aziz said that there was nothing in LNG deal with Qatar to keep it secret. “Why was the deal struck for fifteen years,” he questioned.

The Pakistan State Oil (PSO) officials said that under the deal, the two parties were bound not to disclose the deal except if demanded by a lawful forum and hence it had been shared with chairman senate and the senate committee. The PSO officials further said that such agreements of sale and purchase are kept secret on international level.

The committee chairman said that consultants did not recommend a fifteen-year LNG deal with Qatar. The senators expressed serious concerns over the presence of an official who was sacked from PSO on corruption charges.

The committee recommended sending its observations on LNG deal with Qatar to NAB which was already examining it thoroughly.

Published in Dawn, September 1st, 2018