Islamabad July 14 2024: IMF program raises concerns over both fiscal and regulatroy incentives being offered to refineries for upgradation under upcoming refinery policy.
Government under the new program has agreed refraining from new regulatory or tax-based incentives, or any guaranteed return that could distort the investment landscape, including for projects channeled through the Special Investment Facilitation Council.
“Discontinuation of 7.5% deemed duty on HSD and taxation on Capex incentives, there is a negative impact on the upgrade projects in terms of project IRR and NPV of majority of the refineries” states KPMG study.
“Whereas in the scenario of continuation of 7.5% deemed duty on HSD for the project life and taxation on CAPEX incentive, the project economics become significantly improved” study reveals.
Given the quantum of upgradation CAPEX ($ 6.3 billion) and prevailing foreign exchange situation in the country, the arrangement of debt and equity would be a very challenging task for all the refineries. To make the Upgrade Projects viable, continuation of 7.5% deemed duty on HSD for the project life may be considered besides addressing the tax issue. However, after the new IMF program any tax concession seems difficult which may delay the refinery upgradations.
Building on the economic stability achieved under the 2023 Stand-by Arrangement (SBA), IMF staff and the Pakistani authorities have reached a staff-level agreement on a 37-month Extended Fund Facility Arrangement (EFF) of about US$7 billion. This agreement is subject to approval by the IMF’s Executive Board.
