The government may extend the ex-refinery pricing formula for Pak Arab Refinery Limited (Parco), based on guaranteed minimum 25 percent rate of return on net equity. Sources said that the tenure of ex-oil refinery pricing formula, based on 25 percent rate of return equity, expired on December 31, 2008 and now the Parco administration had demanded extension of the said formula.
According to the formula, the government is bound to compensate the Parco if its rate of return on equity remains below 25 percent. If it exceeds 25 percent rate of return, then the government will not have to compensate the Parco. The sources told Business Recorder on Monday that the Petroleum Ministry sought guidance from the Law Ministry regarding the extension of the Parco ex-oil refinery pricing formula.
After seeking guidance from the Law Ministry, the Petroleum Ministry would move a summary to the Economic Co-ordination Committee (ECC) of the Cabinet for formal approval. The ECC Sub-Committee on ex-oil refinery pricing formula had also directed the Petroleum Ministry to expedite the process of extending Parco ex-refinery oil pricing formula, the sources said.
The Parco is a joint venture between government of Pakistan and Emirate of Abu Dhabi. Pakistan has 60 percent equity and the UAE 30 percent in the Parco, located in Mehmood Kot area of Multan. The Parco oil refinery is the country''s largest with the capacity of processing 100,000 barrels of oil a day. The total refining capacity of all refineries is over 200,000 barrels per day and the Parco is the major contributor in crude oil refining in the country.
The ECC Sub committee on ex-oil refinery pricing formula is working to introduce new ex-refinery pricing formula for the National Refinery Limited (NRL), Pakistan Refinery Limited (PRL), Attock Oil Refinery and Bosicor Pakistan Limited (BPL). The sub committee had also considered members of committee turned down imposing the Parco ex-refinery pricing formula on other refineries that, the sources added.
The government had been giving 10 percent deemed duty for oil refineries as an incentive to expand their projects since 2001, but these oil refineries have failed to set up desulphuration plants so far to upgrade petroleum products to meet international standards.
The deemed duty was reduced to 7.5 percent from 10 percent on July 31, 2008 when the global oil prices went up to 147 dollars per barrel. These oil refineries pocketing profit Rs 60.3 billion for the last 10 years (1998-2008). The sources said that the Parco had been earning a profit and the government had never compensated it because its rate of return remained over 25 percent.
The Parco started operation in 2000-01 and earned profit of Rs 40.218 billion during the last eight years. The year-wise profit is Rs 1.279 billion in 2000-01; Rs 2.361 billion per annum in 2001-02, 2002-03; and 2003-04; Rs 8.715 billion in 2003-04; Rs 3.123 billion in 2005-06; and Rs 6.635 billion in 2006-07. The Parco profit surged to Rs 13.383 billion in 2007-08 in line with the increase in crude oil price.