ISLAMABAD: Pakistan’s four major oil refineries have strongly opposed the government’s proposal to retrospectively reduce the deemed duty on high-speed diesel (HSD), arguing that such a move would unfairly penalize the industry for delays caused by the government’s own failure to implement the Pakistan Oil Refining Policy for Upgradation of Existing (Brownfield) Refineries 2023.
In a joint representation submitted to the Secretary, Petroleum Division, following a meeting chaired by the Minister for Energy (Petroleum Division) on June 23, the chief executives of Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL), and Cnergyico PK Limited (CPL) rejected the proposal to reduce HSD tariff protection from 7.5% to 5% and opposed any retrospective recovery of the 2.5% deemed duty.
The refineries maintained that they had fulfilled all obligations required under the refinery upgradation policy within the prescribed timelines. They argued that the implementation process stalled solely because the Petroleum Division failed to arrange the signing of the required Upgrade Agreements, despite the companies completing all necessary documentation.
According to the representation, PRL signed its Upgrade Agreement in November 2023, while NRL submitted its duly initialled Upgrade and Escrow Agreements along with all required documents on March 22, 2024. ARL followed on March 25, 2024, submitting the required agreements and confirming that the mandatory Rs1 billion bank guarantee would be provided at the time of signing. Cnergyico informed the Oil and Gas Regulatory Authority (OGRA) on April 18, 2024, that its Board had approved both agreements and requested a date for execution.
Despite these steps, the refineries said none of them was invited to formally sign the agreements within the stipulated timeframe. They pointed to official correspondence from OGRA, including letters dated April 3 and April 4, 2024, confirming that ARL, NRL, and PRL were ready to execute the agreements and urging the Petroleum Division to arrange the signing ceremony without delay.
The companies also cited a May 2, 2024, summary submitted by the Petroleum Division to the Cabinet Committee on Energy (CCoE), which acknowledged that the refineries had expressed their readiness to sign the agreements and proposed extending the signing deadline by six months. The summary also recognized that failure to execute the agreements by the deadline would automatically reduce the deemed duty on HSD from 7.5% to 5%.
The refineries argued that the delays were purely administrative and not the result of any failure on the industry’s part. They further noted that the Finance Act 2024 fundamentally altered the commercial assumptions of the refinery upgradation policy by converting petrol, high-speed diesel, kerosene, and light diesel oil from taxable to exempt supplies under the Sales Tax Act, 1990, requiring a reassessment of the policy’s implementation framework.
The companies emphasized that they have remained fully committed to investing in refinery modernization and have continued engaging with the Petroleum Division, OGRA, and other stakeholders to implement the upgradation policy.
The joint representation also challenged the perception that domestic refineries continue to enjoy excessive tariff protection. It noted that the Tariff Protection Formula (TPF), introduced in 2002, was designed to strengthen Pakistan’s energy security by providing reasonable protection to local refineries, encouraging long-term investment, and enabling them to compete with regional and international refiners without relying on government subsidies.
Initially, the TPF provided a 10% deemed duty on HSD and 6% protection on kerosene, light diesel oil (LDO), and JP-4. However, from August 2008, the HSD deemed duty was reduced to 7.5%, while tariff protection for kerosene, LDO, and JP-4 was completely withdrawn.
The refineries have urged the government to honor the original commitments of the refinery upgradation policy and refrain from imposing retrospective changes that could undermine investor confidence and jeopardize billions of rupees in planned investments aimed at producing cleaner fuels and strengthening Pakistan’s energy security.
Story by Khalid Mustafa
