Ministry wants to keep upper cap at $70 per barrel

Finance Ministry has opposed to place upper cap at $80 per barrel crude oil to give deemed duty to oil refineries and want to keep upper cap at $70 per barrel, well informed sources in Finance Ministry revealed to Business Recorder on Saturday. Sources said that Finance Ministry has also opposed raise in deemed duty from 7.5 percent to 10 percent.
However, the final decision will be made in the forthcoming meeting of Economic Co-ordination Committee (ECC) of the Cabinet. Sources said that Petroleum Ministry is going to propose to ECC to place upper cap at $80 per barrel of crude oil and lower to $50 per barrel.
It is also going to propose increase of deemed duty from 7.5 percent to 10 percent for oil refineries that have claimed that they are facing losses after government reduced deemed duty from 10 to 7.5 percent on July 31, 2008.The deemed duty was reduced when crude oil price stood at $147 per barrel in the international market.
However, sources said that government would give deemed duty to those oil refineries that would enter into agreement with government to upgrade the products in schedule time. No refinery will be given the deemed duty that will not make commitment to spend it on upgrading the petroleum products, sources said.
The official sources claimed that oil refineries had failed to reduce sulphur content in diesel and lead in petrol to meet the set standards. No oil refinery has set up plant to upgrade the petroleum products. The government may provide loans to oil refineries to set up plants to reduce sulphur content and upgrade the products, sources said.
With the new proposed deemed duty formula, the Petroleum Ministry had withdrawn the idea of replacing deemed duty with processing fee. The government had earlier offered processing fee of $3.5 per barrel crude oil to National Refinery Limited (NRL) and Pakistan Refinery Limited (PRL) and $5 per barrel processing fee to Attock Oil Refinery and Bosicor Pakistan Limited (BPL).
These four oil refineries in a joint letter addressed to the Petroleum Ministry had refused the said processing fee and demanded raise in deemed duty from 7.5 percent to 10 percent. These refineries claim that they are facing loss in line with the reduction in global oil prices.
At present, there is no mechanism to monitor oil refineries on government side and after implementation of new proposed deemed duty formula, the government will monitor the operations of oil refineries. The new proposed formula will also enable the government machinery to maintain the record of the oil refineries through regular monitoring, sources added.
The petroleum Ministry and oil refineries had differences over processing fee on different petroleum products. The government was of the view that processing fee would be given on regulated products including premier motor gasoline, HOBC, light diesel oil, kerosene oil, JP-1, JP-4 and JP-8.But the refineries wanted the implementation of processing fee on deregulated products and bi-products including furnace oil, naphtha and Liquefied Petroleum Gas (LPG).