Islamabad 24 August, 2022: Government has tasked the Petroleum Division to bring Refinery policy as soon as possible to pave way for multi billion dollars foreign investment in the sector by friendly countries.
The Petroleum Division’s Directorate General of Oil has asked the managing directors (MDs) of five refineries to provide a fresh analysis along with necessary changes in the proposed Pakistan Oil Refining Policy 2022.
The Directorate General of Oil, in a letter to the MDs/chief executive officers (CEOs) of Pak Arab Refinery Limited, Pakistan Refinery Limited, Cnergyico Pk Limited, Attock Refinery Limited and National Refinery Limited has reminded them to submit the requested documents immediately.
According to the letter, requisite information is still awaited which may be submitted to proceed further prior to submission of a summary to the competent forum for its consideration.
The heads of refineries had earlier met with Minister of Petroleum Musadik Masood Malik to discuss and review the policy’s draft wherein they were directed to provide analysis of individual upgradation projects based on Internal Rate of Return (IRR)/Net Present Value (NPV) and their economics, analysis of combined upgradation projects based on IRR/NPV and their economics and IRR of 450K BPD Greenfield Refinery vs 450K BPD combined capacity along with necessary changes in the proposed Pakistan Refining Policy 2021 within two weeks.
The government has agreed to give a free hand to the oil industry to set petroleum product prices by implementing a deregulation mechanism under the new proposed oil policy effective November 1, 2022.
At present, the prices of petroleum products like petrol and high-speed diesel (HSD) are regulated while the price of furnace oil is deregulated.
In a meeting held on Wednesday, the executives of oil refineries, Minister of State for Petroleum Musadik Malik, Energy Task Force Chairman Shahid Khaqan Abbasi and officials of the Oil and Gas Regulatory Authority (Ogra) reached an agreement.
Sources in the petroleum division said that the division has swung into action to introduce a fresh oil refining policy, adding that it is making necessary preparations prior to announcing a new policy under the deregulation scenario.
They said the division is consulting stakeholders while scrutiny of the data submitted so far is being carried out. They added that the petroleum division will submit a summary before the Cabinet Committee on Energy (CCoE) which is expected to give a formal approval to the fresh policy in the near future.
“The government intends to provide necessary incentives and tariff protection to attract more investment in the sector as well as supporting existing refineries in their modernisation and upgradation efforts, being a strategic asset to the country,” said sources.
They also said that existing refineries have the capacity to refine 0.45 million barrels per day and their up-gradation cost will cost around $3-4 billion. However, if a new refinery with the same oil refining capacity is installed then it will cost approximately $13-14 billion which is more than the country’s net reserves and clearly not a viable option.
“The viable option for the country is to upgrade the existing refineries instead of installing new refineries to meet the EURO-V standard,” said sources.
It is pertinent to note here that in order to ensure the supply of quality products to consumers, the government has been constantly improving the desired specifications of refinery products to remain aligned with the global refinery market as well as international quality benchmarks. Improvement in product standards has led to the up-gradation of existing plants to remain commercially viable against the headwinds of import of oil products from the international market.
As per sources, the above mentioned five existing refineries have constantly been upgrading their installed configurations in compliance of new specification and to compete with international suppliers in line with the tariff protection formula given in the budget speech on Finance Bill 2002, whereby refineries were required to operate and compete in the market at their own, without the precondition to upgrade.
Refineries on Monday appealed to the government to approve the draft of refining policy, up in the air for over two years, fearing this delay might jeopardise industry’s $4-5 billion upgrade plans and $8-10 billion investment in the greenfield projects.
Country’s oil refiners have also asked the government to consider their proposal submitted with Ministry of Energy in February for running furnace oil (FO) fired power plants having near 1,500MW or equivalent generation capacity on regular basis, as per an Attock Refinery Limited (ARL) letter dated April 15, 2022 to Secretary Petroleum.
Refineries, in the letter written with the subject ‘Refineries role in averting products availability crisis’ pleaded that this proposal would help avert the recurrence of petroleum products’ scarcity and glut of FO because of ullage issue that happens almost every year.
“This proposal along with approval of new Refining Policy will allow the existing refineries to upgrade and expand their respective units to produce Euro-V compliant fuels with increased production.”
Refineries also called on the secretary petroleum to convene a meeting to discuss the proposal at the earliest. They argued that in order to avoid recurrence of such situations, a permanent solution was critically important to enable maximum utilisation and sustainability of the sector and to ensure availability of petroleum products to the maximum possible extent.
The letter also referred to the meeting, chaired by secretary petroleum and attended by chairman OGRA and refineries officials on March 31, 2022, wherein directions were given to all refineries to enhance their production to meet the growing demand of petroleum products in the country, especially FO and diesel.
During the meeting, it was assured that despite serious challenges being confronted by the sector, the refineries would certainly endeavor to enhance their respective throughputs, especially maximisation of FO production, keeping in view problems in sourcing LNG supplies from the international markets.
The letter also asked the petroleum secretary to recall that a few months back (December 2021-January 2022, refineries were struggling to operate due to high stocks of FO owing to little or no consumption in the power sector.
Some of the refineries even had to shut down their operations because of ullage problems and some had to export FO at substantial financial losses.
The growing demand of petroleum products in the country coupled with changing geopolitical situation necessitates the need for having a modern and vibrant refining sector in Pakistan to ensure its energy security, refineries also said.
It must be noted that the then SAPM on Energy Draft, had almost finalised the refining policy draft, but the government did not give a green-signal because of the disputed tax holiday. According to the draft, the new policy seeks extension up to December 31, 2022, for availing tax holiday under clause 126B of Finance Act 2021-22, to obtain government approval for setting up new deep conversion refineries from existing deadline of December 31, 2021.
The new policy also says there shall be no duties and sales tax on import of crude oil, being the main raw material of refineries, from July 1, 2022.
In August 2021, the energy ministry submitted a new Refinery Policy to ECC (Economic Coordination Committee) of the Cabinet. Now the newly-formed cabinet will discuss the policy and according to sources Mr Miftah Ismail already has the document about the refining policy to study.
