ISLAMABAD: The Petroleum Division has requested the Cabinet Committee on Energy (CCoE) to extend the deadline for signing upgrade agreements with five domestic refineries for six months until October this year, but most refiners smell a rat for the delay.

“The government seems to be more focused on attracting foreign investment, which is no doubt important, but it needs to realise that foreign investment flows in only when existing foreign and local investors are listened to,” said Adil Khattak, who is chairman of Oil Companies Advisory Council (OCAC) and chief executive officer of Attock Refinery Ltd.

He said the deadline for signing upgrade agreements with the Oil and Gas Regulatory Authority (Ogra) was April 22, 2024. Three refineries — Attock Refinery Ltd, National Refinery Ltd and Pakistan Refinery Ltd — gave consent to sign the agreements before the deadline, while two other refineries — Parco and Cnergyico — needed more time.

However, the “Petroleum Division didn’t arrange signing with the willing refineries, nor extended the deadline date in time to accommodate Parco’s request”, he said, adding that ARL, NRL and PRL plan to invest $3bn on their upgradation projects. The total investment will increase to $6bn when Parco and Cnergyico join in.

Excessive delays cause about $4bn loss in last four years

It may be noted that the refining policy had already taken more than four years to develop, causing the country to lose about $4bn due to these delays.

Interestingly, the Petroleum Division has now moved a summary to the CCoE days after the deadline expires, seeking a six-month extension even for those ready to start working immediately on upgradation to Euro-5 fuels.

The Petroleum Division said the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023 was approved by the Federal Cabinet in February to upgrade the existing refineries to produce environment-friendly Euro-V fuels and decrease the production of furnace oil.

The policy provided an incremental incentive of 2.5pc on HSD (in addition to the current 7.5pc) and 10pc on petrol in the form of deemed duty for seven years to achieve this objective. The incremental incentive has been deposited in an escrow account maintained by Ogra with the respective refinery for meeting up to 27.5pc of the upgrade projects’ cost. Ogra is to allow withdrawal of funds from the escrow account by the respective refinery, post financial close of the Upgrade Projects, and against expenditure made for each milestone or the deliverables.

To avail the said incremental incentive, the refineries were required to execute Upgrade Agreements, open an Escrow Account with Ogra and provide Rs1bn bank guarantee to Ogra within 60 days of notification of the Policy i.e. by April 22, 2024. The policy required the deemed duty to be cut from 7.5 to 5pc for refineries that do not sign the upgrade agreement by the said deadline.

The petroleum division confirmed that “ARL, NRL and PRL have conveyed their readiness to sign the Upgrade Agreement” and requested the Petroleum Division to coordinate the signing ceremony. “However, Parco and Cnergyico Pakistan Limited (CPL), jointly contributing more than 50pc of the country’s refining output, have yet to finalise the Upgrade Agreements,” the Petroleum Division said.

Interestingly, the Power Division also confirmed in the summary that Parco was in the process of updating its feasibility study, after which its board of directors will decide on the planned upgrade. “The said activities may take 5-6 months.”

On the other hand, the Petroleum Division also confirmed that “a settlement agreement between Cnergyico and the Government of Pakistan for payment of (about Rs50bn outstanding petroleum levy (payable by Cnergyico) was also being negotiated”, which also could not be concluded before April 22 deadline.

“In case of non-signing by the due date, the deemed duty on HSD shall be reduced from 7.5pc to 5pc for Parco and Cnergyico, making the operation of these refineries extremely challenging”.

Published in Dawn, May 9th, 2024