ISLAMABAD: A modified draft of the Pakistan Oil Refining Policy 2021 for streamlining tariff protections to fresh investments for new refineries or upgrades of existing refineries was submitted by the Petroleum Division to the Cabinet Committee on Energy (CCoE) on Wednesday.

Petroleum Division’s refining policy was discussed at the CCoE meeting on August 20. CCoE chairman, Planning Minister Asad Umar, had raised certain reservations on the draft. The committee directed Petroleum Division to review the policy with reference to specific points and observations highlighted by it. The CCoE further directed that the revised draft policy be submitted to the committee after incorporating viable recommendations therein.

Accordingly, the Petroleum Division reviewed the CCoE points and made four major modifications in the draft policy.

First, upfront utilisation of incremental tariff protection revenue was previously provided in the Policy w.e.f Jan 1, 2022. Under the new proposed arrangement this amount can only be used after award of Engineering, Procurement, and Construction (EPC) contract by the respective refineries which was expected by start of 2024.

This will ensure that refineries incur cost from their own resources prior to utilising funds through tariff protection and accurate costing would be available as front end engineering design (FEED) would already have been carried out. The funds generated through tariff protection would be available for EPC and onwards which represent the major spending phases.

Secondly, the Oil & Gas Regulatory Authority will monitor the generation of incremental revenue to be deposited in a special reserve account by each refinery under a separate bank account to be opened in the National Bank of Pakistan and ensure its utilisation, for the purpose of the up-gradation or expansion of the refineries on proportionate basis of the incremental revenue and refinery’s contribution.

Thirdly, in order to simplify the governance arrangements, the mechanism of hiring of joint external consultant as proposed during the presentation in CCoE meeting dated August 20 has been dropped.

Fourth, as force majeure is a project specific contractual arrangement hence it has also been deleted from the draft policy. Fifth, previously, bank guarantee worth Rs500 million per refinery was required till Financial Close. As an abundant precaution, this has been extended till commissioning of the project (COD). The form and features of guarantee will be subject to acceptance by Ministry of Energy (Petroleum Division).

Published in Dawn, September 2nd, 2021