In a meeting set for Tuesday, the Pakistani cabinet will deliberate on a proposal to waive customs duties on equipment for refinery upgrade projects. This follows a Cabinet Committee on Energy (CCOE) session, which leaned towards not granting such waivers due to IMF commitments.
The potential exemption for customs duties on refinery equipment, a component of the new refinery policy, is now uncertain, causing concerns in the refining sector. Yet, the CCOE approved a $1 billion incentive package to amplify diesel and petrol production. This incentive is in the form of deemed duties for refineries planning upgrades.
Prime Minister Shehbaz Sharif-led CCOE emphasized IMF restrictions on customs waivers and decided against exemptions for all energy imports. However, refineries would get compensation through a revenue-based mechanism.
Pakistan’s Path to Fuel Self-Sufficiency
The Petroleum Secretary is tasked with gauging the effects of this customs waiver withdrawal, with results presented in the upcoming cabinet meeting. There’s a possibility of increasing allocations to an Escrow account for refinery projects from 25% to 28% to counter the waiver loss.
The CCOE approved incentives, including a 10% deemed duty on petrol and 2.5% on diesel, up from the previous 7.5%. This is part of a plan to bolster diesel and petrol production. The funds will be managed by the Oil and Gas Regulatory Authority (OGRA) and refineries to increase local fuel production.
Projected expenses for upgrades are around $4-$5 billion, with $1 billion in revenue allocated to these projects. The aim is to meet the national petrol demand, which is set to increase from 30% to 60%. As for diesel, the goal is 100% local production, leading to $1.2 billion in economic benefits over two years.
Refineries must start upgrades within three months of policy notice and agree to specific project conditions. Non-compliance may result in penalties monitored by OGRA.