Economic Co-ordination Committee (ECC) of the cabinet scheduled to meet on Thursday (tomorrow) may allow oil refineries to continue charging current 7.5 percent deemed duty on High Speed Diesel (HSD) which the Judicial Commission had recommended abolishing, Business Recorder has learnt.
Rukhsana Zuberi, one of the petitioners in the Supreme Court and member of the Oil/Economic Expert Committee on review of pricing formula, has strongly opposed the continuation of deemed duty on HSD. "However Petroleum Minister Syed Naveed Qamar wants to continue deemed duty arguing that its elimination would result in a loss in custom duty collections," sources revealed.
Ministry of Petroleum has accepted that after de-regulation, ex refinery price of petrol would increase by Rs 3-4 per litre in three refineries namely NRL, PRL and ARL. Rukhsana Zuberi said that deregulation of petrol would make both refineries and OMCs richer at the cost of the consumers at large in case of MS (petrol).
ECC which met on July 1, 2010 had approved de-regulation of Inland Freight Equalization Margin (IFEM) putting a burden of fuel transportation on Pakistan State Oil (PSO) which is facing financial woes due to the circular debt issue. ECC decided that PSO would provide subsidy to the far-flung areas from its own margins; however the issue of de-regulation of petroleum product prices was deferred.
Oil refineries have reportedly generated Rs 80 billion on account of deemed duty since 2002 to December 2009. "Petroleum Ministry has again recommended continuing existing 7.5 percent deemed duty on HSD," sources said adding that in spite of this the oil refineries did not upgrade plants to improve the standard of petroleum products.
Petroleum Ministry has proposed to the ECC that determination/notification of ex refinery prices of HSD and kerosene (SKO) produced by local refineries continue to be managed by Ogra as per existing formula with 7.5 percent custom/deemed duty on HSD excluding 1.008 percent incidentals on HSD and SKO. The element of custom/deemed duty will be reviewed keeping in view the profitability of the refineries as and when required. Ogra will monitor refineries profitability and submit its recommendation to the government for policy decision in this regard.
In order to ensure the most economical movement of petroleum products and provide level playing field to OMCs, Petroleum Ministry has proposed that Ogra may intervene if any violation takes place on the part of refineries in allocation of petroleum products to OMCs.
Petroleum Ministry has also proposed to allow the refineries and OMCs to fix and announce on monthly basis the ex refinery and ex depot sale prices for Motor Spirit (MS), HOBC, LDO and aviation fuels (JP-1, JP-4 and JP-8) on a competitive basis.
The ex-refinery price of petroleum products has been proposed not to be greater than the average actual import price of the previous month excluding incidentals. For imported petroleum products, only actual incidentals incurred, if any, may be included in price fixation. In case of non availability of import prices, the refineries will fix the price as per existing IPP formula parameters excluding incidentals.
According to recommendation of Judicial Commission regarding PARCO special status, especially with respect to determining PARCO ex refinery price on uniform basis, stands eliminated with deregulation of MS, HOBC, LDO and aviation fuels pricing.
PARCO will be advised to create special reserves for future up gradation, modernisation etc as in case of other refineries. The recommendation of the Judicial Commission to fix GST per litre (in rupees) was the domain of Ministry of Finance and the Federal Board of Revenue (FBR) and they may take appropriate action in this regard.
ECC in its meeting held on July 1, 2010 was informed that the expert committee on oil pricing conducted a series of meetings to deliberate on various options including: (i) existing import parity (IPP) with and without deemed duty; (ii) Singapore based prices; and (iii) guaranteed rate of return, processing fee, and refining margins in percentage and sliding scale margins.
The refineries had demanded guaranteed rate of return irrespective of any pricing formula, which was not acceptable to the government. Despite hectic deliberations, the committee could not develop consensus on the refineries pricing formula for petroleum products.
"Therefore, a number of meetings of Ministries of Petroleum, Finance, Industries and Production, Ogra and Islamabad Chamber of Commerce and Industry were held," sources said adding that all these stakeholders agreed to the proposals submitted by Petroleum Ministry to ECC. The issue of removal of 7.5 percent deemed duty on High Speed Diesel (HSD) was also discussed and considered not viable at this stage because of losses to oil refineries and revenue loss on import of HSD to government.
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