Upfront incentives for upgradation: Govt seeks equity in local private refineries’ shares

Khalid Mustafa
Tuesday, Sep 14, 2021

ISLAMABAD: The CCOE (Cabinet Committee on Energy) that met here on Monday with Federal Minister for Planning and Special Initiatives Asad Umar in the chair has deferred the approval of the Pakistan Oil Refinery Policy 2021 for local refineries, asking the Petroleum Division to review the upfront incentives package for upgradation based on fundamental principal of equity so that the public money in the shape of tariff protection (deemed duty) could not be misused.

However, the CCOE has accorded approval to a portion of the Refinery Policy 2021 for new refineries in the country, a senior official who was part of the meeting told The News. In the meeting, he said Finance Minister Shaukat Tarin, Planning and Special Initiatives Minister Asad Umar and surprisingly Energy Minister Hammad Azhar were on the same page and opposed the upfront incentives for the existing refineries’ upgradation and gave the guidance to the Petroleum Division to review the incentives based on the fundamental principal of equity. They were of the view that refineries are supposed to invest $4.2b in upgradation.

Forty per cent fund will be generated through the tariff protection (deemed duty) which is public money and the government wants to develop its stake through equity in the local refineries (out of existing five refineries, three are owned by the private sector). In three local refineries, the Finance minister wants to have government equity against the upfront incentives to be given to the refineries. The remaining 60 per cent amount will be arranged by refineries thorough their equities and loans.

“If such a precedent is set, players of other economic sectors will also seek from the government the same invective package which is not possible for the finance ministry,” the official said while quoting the Finance minister.

However, SAPM on Power and Petroleum Tabish Gauhar spoke at length and advocated incentives for the local refineries, arguing that in the last 40 years, there has been no investment in the sector and more importantly if the incentives are not extended, these all will die out. However, the Finance minister and the Planning minister said: “Let inefficient entities die and the government will start importing POL products.” Then the SAPM responded, saying that there is already a huge congestion in the ports and under this scenario, more congestion will grip the ports.

Industrial sources told The News that the managing directors of the five local refineries are going to put their heads together tomorrow (Wednesday) to carve out a strategy in the light of the CCOE’s guidance to the Petroleum Division, asking for government equity against tariff protection.

When contacted, a top official at the energy ministry said: “The Petroleum Division welcomes the guidance of the CCOE to further review the upfront incentives for upgradation, which is to be based on fundamental principle of equity against the deemed duty (tariff protection) to be extended to the local refineries to get maximum value of the public money.” He said the lack of action in terms of incentives will be harmful to the refineries and unplanned facilitation will be damaging as in the past, some of the deemed duty has been used to offset their losses. This time all the tariff protection money will be accounted for and only efficient refineries will survive by using the said amount efficiently. The Power Division submitted a report of the Implementation Committee on the Ratification of the IPPs Agreement under the 2002 Power Policy. After a discussion, the committee approved the final report of the committee and directed the Power Division to proceed with the payments of all 11 IPPs as per the signed agreement except a company whose cases are under investigation at the NAB. Due to the limited availability of natural gas during winters, the consumers need alternative affordable resources for meeting the heating requirements.