ISLAMABAD: The federal government is grappling with a major hurdle in its plans to upgrade domestic refineries as the deadline for signing upgrade agreements looms.

The issue stems from the sales tax exemption granted by the Federal Board of Revenue (FBR) in the national budget 2024-25, which has created uncertainty for investors.

With around $6 billion worth of investment hanging in the balance, the Petroleum Division is considering seeking an extension from the Cabinet Committee on Energy (CCoE) to finalise the agreements with five domestic refineries.

The current deadline is Tuesday (Oct 22).

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

To address the impasse, a meeting has been convened on Tuesday between representatives of the refineries, officials from the petroleum and finance divisions, and the FBR. The aim is to find a consensus solution that will allow the refinery upgrade projects to proceed.

The Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023, approved by the Federal Cabinet in February, aims to modernise the country’s refineries and reduce their reliance on furnace oil. The policy offers a significant incentive of 2.5 per cent on high-speed diesel (HSD) and 10 per cent on petrol in the form of deemed duty for seven years.

However, the exemption granted by the FBR has complicated matters, as refineries are hesitant to invest without clarity on the tax implications.

While ARL, NRL, and PRL have expressed their willingness to sign the upgrade agreements, Parco and Cnergyico Pakistan Limited, which contribute more than 50 per cent of the country’s refining capacity, have yet to finalise their plans. The government is under pressure to resolve the issue promptly to ensure the successful implementation of the refinery upgrade projects and improve the country’s fuel quality.

The outcome of the meeting on Tuesday will be crucial in determining the future of these vital investments.

Copyright Business Recorder, 2024