OCAC rejects allegation against local refineries

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Oil Companies Advisory Committee (OCAC) has strongly rejected that local refineries would be fleecing the consumers by increasing the rate of duty on High Speed Diesel (HSD) from 7.5 percent to nine percent.

At the very outset, OCAC while strongly refuting the above impression has termed the allegations levelled against the local refineries are totally baseless and without any substance.

It may be highlighted that the refineries have shown their commitment for a total investment of $2.4 billion (Rs 235 billion approx.) for refinery upgradation projects which include investments in cracking units in addition to the Isomerisation and Diesel Hydro De-Sulphurisation (DHDS) units. As against the above huge investment, the refineries undertaking these projects shall generate additional revenue of Rs 4.7 billion annually which will be insignificant in relation to the additional annual operating and debt servicing costs of these projects.

It is also appropriate to dispel the impression that the refineries have not utilised the reserves accumulated in the past for their up-gradation projects as the utilisation of these reserves was made as per the provisions of the applicable pricing formula. Regardless, such reserves accumulated were absolutely insufficient to meet the capital costs of the upgradation projects due to which the refineries have been requesting for a review of the pricing formula. While the refineries are fully committed and actively engaged in undertaking the projects which will improve product quality specifications making them Euro II compliant, some of these projects like Diesel Hydro De-Sulphurisation (DHDS) units are being delayed due to improper incentives offered. It was also in this context, that the refineries have openly offered themselves for a third party audit certification on the utilisation of the reserves accumulated or to be accumulated as a result of these incentives and agreed to submit progress reports on the project implementation.

In view of the above, the local refineries require an additional incentive and time to meet the Euro-II quality as such projects requires about three years for completion. It may not be out of place to mention that unlike the past, the incentive proposed through additional 1.5 percent duty on HSD, is subject to the condition of completion of these projects by the deadline of December 31, 2015 and therefore the criticism that the refineries do not utilise the funds generated shall stand addressed. Additionally, it has also been proposed that till the completion of these projects, refineries will no longer be allowed to offset losses from the special reserve accounts and the distribution of profits shall remain subject to the prescribed conditions laid down in the current pricing formula.

It also needs to be appreciated that the refineries effective March 1, 2013 have already started producing Euro II Environment friendly petrol as per the directives of Ministry of Petroleum & Natural Resources. It may also be noted that refinery sector in Pakistan in spite of being high strategic and economic importance has remained stagnated due to absence of an enabling environment. On the other hand, refinery sector in neighbouring country has grown tremendously due to investment friendly policies.

Courtesy: Business Recorder

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