Adverse impact of budget on refineries policy: PD and FBR preparing a viable solution

ISLAMABAD: The Petroleum Division and the Federal Board of Revenue (FBR) are reportedly preparing a viable solution to mitigate adverse impact of federal budget on Refineries and Brownfield Refineries Upgradation Policy, 2023, well-informed sources told Business Recorder.

This issue of adverse impact of the amendment to the Sales Tax Act, 1990 on the existing operations and planned upgrade projects was discussed in detail at the Executive Committee (EC) of the SIFC in its last meeting.

According to sources, Petroleum Division argued that budget FY 2024-25 has adversely affected the incentives/parameters of the Upgradation Policy, 2023.

Minority stakes sell: PM directs Petroleum, Finance divisions to prepare plan

The EC, sources said, directed the Petroleum Division and the FBR to jointly recommend measures that would mitigate the adverse impact of the budget to revive the viability of the policy.

During the meeting, the refineries also presented possible solutions to address sales tax impact on their operations as well as on upgrade projects which are as under, in order of priority:

The refineries proposed to restore the status of petroleum products (MS, HSD, Kerosene and LDO) as of June 30, 2024, ie, zero-rated. This may be restored through Act of Parliament; or Promulgation of Presidential Ordinance and ratify it through parliament within 120 days.

This proposed option does not increase the price MS/HSD for consumers; however, it may address OMCs concerns.

It has been proposed that to address OMCs concerns on sales tax, the government may impose nominal sales tax @ 3% through Act of Parliament; or Ordinance and ratify it through parliament within 120 days

The proposed option increases consumer price by Rs 8 per liter on MS/HSD which may be neutralized through reduction in PL with the same amount.

The proposed change would nullify the adverse impact of sales tax on operations and reduce it on the upgrade projects of refineries and is supported by OGRA. It may also result in additional revenue for the government.

Refineries proposed reimbursement from IFEM + revision in the Brownfield refining policy to include fiscal stability clauses and imposition of Sales Tax through next fiscal year budget.

The EC directed Secretary Cabinet, Secretary Law, Secretary Finance and Chairman Federal Board of Revenue (FBR) to explore the possibility of application of Stabilization Clause for safeguarding investment related policies.

Petroleum Division, in consultation with Law and Finance Divisions was tasked to finalize, Settlement Agreement of CPL in light of tenth AC decision and report in its next meeting.

Mobadala, UAE will be approached, keeping Ministry of Foreign Affairs on board for prompt decision by PARCO regarding upgradation and report in the next EC.

On measures for policy continuity and stabilization, Secretary Cabinet Division will review Rules of Business for incorporating whole-of-government approach in policy formulation.

It was stated that amendments/upgradation to existing policies should safeguard the measures already provided in earlier policies.

During discussion on E&P Policy and regulatory interventions, Secretary Petroleum and Secretary Law have been asked to ensure that Petroleum Division will take immediate measures for implementation of Council of Common Interests (CCI) decision of January 2024, allowing company to sell 35 per cent of new gas discoveries to third party buyer and notification of Tight Gas Policy.

Petroleum Division is to present framework for consideration/approval of the Executive Committee of National Economic Council (ECNEC).

The sources said, the meeting also discussed revised Gas Merit Order (GMO), with the assertion that 10th EC took notice of the fact that 9th EC had endorsed the revised GMO on February 2, 2024 and directed Petroleum Division to seek approval of ECC at the earliest. PD has after five months suggested that the merit order be revised again due to changed circumstances and international commitments regarding phasing out of captive power plants completely.

The meeting directed Petroleum Division to present revised summary to ECC on immediate basis, the sources said, adding that summary has been prepared and sent to other stakeholders for comments.

On the issue of options available for 50 MMCFD gas supply to NSCL, it was informed that 10th EC meeting on May 25, 2024 directed Petroleum Division to conduct cost benefit analysis, in collaboration with Ministry of Commerce and Ministry of Industries and Production, to work out a way forward (options for allocation of required gas volume to NSCL on priority) at WG level keeping in view ongoing gas pricing reforms. Same was stressed in 9th EC meeting. However, no firmed up way forward was presented in the 10th EC meeting. Petroleum Division has been directed to ensure speedy implementation of decision of 10th EC meeting and share implementation status.

Copyright Business Recorder, 2024