Managing Director, Bakri Pakistan, Mirza Shakeel Baig has urged the government to extend tax incentives for first three years to encourage foreign investment by new Oil Marketing Companies (OMCs) along with one window facility. Addressing Pakistan Energy Conference 2016 in Islamabad, he said that government should provide incentives to new oil companies and those who opt for alternative energy.
"Incentives must be given to those who are using energy saving equipment eg lighting, pumps, dispensers, service stations and local refineries and support may be extended to small OMCs on basis of their demand rather than placing priority over the size of company," he added. Baig further argued that tax benefits should be given to companies constructing rural sites and capability of local refineries be enhanced through time-bound fiscal support to enable them to produce better-quality fuels.
In his presentation, he said that with the expected GDP growth rate of 4.5 percent to 6.5 percent, Pakistan's energy appetite is expected to grow at an ACGR (Annual Compound Growth Rate) of 4.3 percent to 6.0 percent. Downstream annual sales of petroleum products in Pakistan exceed Rs 1 trillion, employing more than 124,000 people (directly/Indirectly) in the industry. Petroleum sector contributes more than Rs 200 billion towards taxes.
The country's petroleum demand is met through imports and five local refineries and currently there are 13 downstream OMCs. Pakistan has over 7,300 retail outlets spread from Karachi to Jaglot and storage capacity of over million MT, making 15 days reserves. Regulated margins are Rs 2.35 per liter on HSD and petrol. Talking about supply demand outlook, Baig said that demand in 2005 was around 7.7 million MT HSD and 1.3 million MT PMG , of which 47 percent was imported and 53 percent was locally produced whereas demand in 2015 was around 6.9 million MT HSD and 3.9 million MT PMG. He said demand for HSD has declined by 11 percent vs 2005, PMG demand has increased by 192 percent, adding that overall growth in the Industry is around 20% since 2005. Retail outlets in Pakistan have grown from 5,670 to 7,341 during the period 2005 to 2015 (1,671 petrol pumps) and more than three million cars have increased on the roads since 2005 (4,539,000 vs 1,246,000). Three million bikes have been added to the roads since 2005 (6,020,000 vs 3,063,000)
According to Baig, investment capacity must exceed Rs 500 million for initial period of three years, based on the criteria of 60:40 debt/equity ratio. He urged the government to clear Investment plan on development of depots, installation, etc, to create minimum storage of 20 days of their proposed sales, within 3 years. He also suggested that arrangements should be made for uplift of all products first from local refineries before import along with marketing plan for secure supply arrangement and development plan for over three years. Provisional marketing licence should be issued for three years before confirmation. He maintained that development of infrastructure while selling the product, high operating cost per litre, import of small cargoes are the key challenges. New companies will have no shareholding to get the product.
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