ISLAMABAD: The Executive Committee (EC) of the Special Investment Facilitation Council (SIFC) has set a deadline of January 7, 2025, for the signing of the upgradation agreement between OGRA and five refineries.
Sources informed Newzshewz that during a recent meeting, the EC took notice of the delayed implementation of the Brownfield Refinery Upgradation Policy (enacted in August 2023), which aims to attract USD 5-6 billion in investment.
Earlier, the Secretary of Petroleum raised concerns that the exemption of sales tax on petroleum products (petrol, kerosene, diesel, and LDO) in the 2024/25 budget had made refinery upgradation and operations apparently unviable. This exemption impacted the overall project cost by $763 million, threatened the routine operations of refineries, and made them unsustainable.
The EC decided that the Petroleum Division, in collaboration with the Finance Division and other stakeholders, would hold a working group meeting to finalize the way forward on the necessary amendments to the policy. The Finance Division will consult all concerned parties to address the sales tax exemption issue. Subsequently, the Petroleum Division will move a summary for the required action by January 15, 2025.
The Oil and Gas Regulatory Authority (OGRA) is tasked with determining how to manage the operational loss caused by the sales tax exemption through the Interim Pricing Mechanism (IFEM). The signing of the upgradation agreement between OGRA and the five refineries must be completed by January 7, 2025.
Last month, the refineries announced that three more refineries had signed upgradation agreements with OGRA, bringing the total to four. Pakistan Refineries Limited (PRL) had already signed the agreement, while PARCO is still finalizing its study to determine the scope of its upgradation project.
The three refineries that signed the agreements are Attock Refinery Limited (ARL), Cnergyico PK Limited, and Pak Refinery Limited. These refineries have also called for a resolution of the Goods and Services Tax (GST) issue, especially with the IMF Review Mission in Islamabad. Resolving the longstanding GST issue is crucial for securing the IMF’s approval.
In a joint letter to OGRA Chairman Mansoor Khan, the CEOs of the three refineries referred to a letter sent to the Petroleum Division on November 7, 2024. The letter requested input on the reduction of the deemed duty on High-Speed Diesel (HSD) under Clause 6.1.3.5 of the Brownfield Refining Policy. This clause applies to refineries that have not yet signed upgradation agreements with OGRA, as well as requests for an extension of the policy’s deadline for signing such agreements.
The refineries emphasized that they have not delayed signing the upgrade agreements within the timelines set by the Brownfield Refining Policy. They are committed to upgrading their facilities and have already finalized the Upgrade & Escrow Account Agreements with OGRA. However, the total investment of over $6 billion required for these upgrades depends on the urgent resolution of the GST issue on petroleum products before the agreements can be finalized.
While positive discussions with the government have taken place, including a recent meeting of the Special Investment Facilitation Council (SIFC) on October 22, 2024, involving representatives from the refineries and the Ministry of Energy, the issue remains unresolved and needs to be addressed in the national interest.
The refineries are seeking support from OGRA and the Ministry of Energy, particularly in resolving the GST issue and securing an extension of the deadline for signing upgradation agreements under the Brownfield Refining Policy. However, despite these ongoing discussions, the EC of SIFC noted that agreements between OGRA and five refineries have not been signed to date.
