Oil refinery policy 2023: booster to Chinese, Saudi, UAE companies

(By Yasir Habib Khan):-

To inject fresh impetus into the planned $ 4.5 billion oil refinery plant by a Chinese company in Gwadar as well as more than $ 10 billion oil refinery plant by Saudi Arab and UAE in Hub, Balochistan, the Pakistani government has finalised a draft of the oil refinery policy 2023 that envisages several tax exemptions and incentives.

The refining policy is comprised of two components with one related to existing local refineries and the other about the investment for the new refineries in the country.

The policy proposes an exemption from customs duty, surcharges, withholding taxes, general sales tax, any other ad valorem tax, or any other levies/ duties on the import of equipment to be installed or materials to be used in the refinery without any precondition of certification by the Engineering Development Board. The federal government will facilitate the grant of similar exemption from the provincial and local taxes, the Policy revealed.

The exemption will be available to foreign contractors or sub-contractors from the provincial and federal taxes concerning the execution of services for construction, operations, and engineering performed in Pakistan.

Refineries will be exempt from the withholding tax requirements under the Income Tax Ordinance 2001 on payments to be made to non-resident persons (including the contractor or an associate of the contractor) on account of the purchase of machinery/ equipment to be installed in the project.

According to the draft policy, in case the pricing regime is deregulated, during the period from January 1, 2023 to December 31, 2028, the refineries will be allowed to retain the prevalent customs duty in the ex-refinery price.

If the existing pricing mechanism or a regulated pricing regime remains applicable after December 31, 2028, the applicability of prevalent customs duty to the ex-refinery price of finished products will be reviewed. In the event the pricing regime is deregulated after December 31, 2028, the refineries will be free to set prices for their products. Besides the customs duty above, 10% would be returned to the Oil and Gas Regulatory Authority (Ogra) under the Inland Freight Equalisation Margin (IFEM) framework.

OGDCL official told Gwadar Pro that in the past 40 years, no new refinery has been set up in Pakistan, which needs a new plant that can process 400,000 barrels of crude per day to meet the country’s high petroleum demand. Upgrading the existing refineries can also lead to an increase in their installed capacity to cater to consumer needs.

At present, Pakistan’s oil refineries are meeting 55% of the annual demand for petroleum products and saving foreign exchange of $1 billion. They utilise around 70,000 barrels of local crude and condensate per day. They say they are providing more than 100,000 direct and indirect employment opportunities and are making reasonable contributions to the national exchequer and GDP.

Under the policy, besides greenlighting incentives to upcoming oil refineries from China and Gulf region, the Pakistani government has also been emphasising the upgrading of five local refineries, which requires huge capital investment. Besides, there was also a need for an additional refinery with a capacity of 300,000 to 400,000 barrels per day, along with petrochemical at $10-15 billion to meet the country’s demand, which is being catered through imports presently.