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KARACHI: Pakistan has approved an oil refinery policy to encourage the establishment of new refining plants and the upgrade of existing ones, the planning ministry said on Monday, as the nation eyes billions in investment from foreign powers, particularly ��������Ƶ and the United Arab Emirates.
The South Asian nation plans to use lucrative incentives to attract $10-15 billion investment for a world-scale deep-conversion refinery and petrochemical complex. The incentives include a 20-year income tax holiday on all taxes under the Income Tax Ordinance 2001, which will apply to new deep-conversion oil refinery projects with a minimum 100,000 barrels per day refining capacity, starting before December 31, 2025, according to a policy draft seen by Arab News.
The country hopes to attract Saudi and Emirati interests through incentives offered for the deep-conversion oil refinery projects.
The energy committee of Prime Minister Imran Khan’s cabinet last week approved the Pakistan Oil Refinery Policy 2021 and directed the petroleum division to revisit the upfront incentive package offered to existing refineries in the country.
“A new oil refining policy is being rolled out this year under which various fiscal and other incentives shall be offered to existing and new players, such as Saudi Aramco, to upgrade and set up deep-conversion oil refineries in the country,” Tabish Gauhar, PM Khan’s aide on power, told Arab News.
“There was inclination from ��������Ƶ and Abu Dhabi for investment in refining sector and the government has given them the incentives through this policy,” Dr. Nazar Abbas Zaidi, former secretary of the Oil Companies Advisory Council (OCAC), told Arab News.
“The government has also offered incentives to the existing refineries to upgrade themselves so that they could produce products of Euro-V standard,” he added. “This industry is capital intensive as even a small-scale refinery needs around $2 billion investment.”
Some experts believe the new policy will help Pakistan increase its refining capacity, which would in turn reduce its import bills for petrol and diesel.
“Pakistan currently imports crude and refined products. After the implementation of the new policy, the country will be in a position to cut the imports of refined products by increasing its refining capacity,” Masood Abdali, a Texas-based energy expert and a former business development manager of Weatherford in ��������Ƶ and Bahrain, said.
Under the new policy, Pakistan will not impose duties and sales tax on the import of petroleum crude oil — the main raw material — by refineries themselves with effect from July 1, 2022. However, the finished product will be subject to import duties and sales tax, according to the policy draft.
The government will also provide tariff protection in the form of 10 percent import duty on motor gasoline and diesel of all grades as well as imports of any other white products used as fuel for any kind of motor or engine, effective from the date of commission for six years, provided that the refinery starts construction of the project before December 31, 2025.
For the upgrade of existing refineries and petrochemicals project, the policy offers a 10-year income tax holiday on all taxes under the Income Tax Ordinance 2001 from the date of commissioning of the upgrade, modernization or expansion process.
Each refinery is supposed to open and maintain a “special reserve account” for its upgrade in the National Bank of Pakistan .
Under this policy, Pakistan has also exempted projects from the Companies Profits (Workers’ Participation) Act, 1968 and Workers’ Welfare Fund Ordinance, 1971. The former binds business entities to contribute five percent of their pre-tax profits to the Workers’ Participation Fund, while the latter calls for providing low-cost housing and other amenities to industrial labor.
The government has also offered exemption from customs duties, surcharges, withholding taxes, or any other levies on import of equipment or material to be used in the projects without any certification by Pakistan’s Engineering Development Board.
Oil refineries in Pakistan are outdated and have only 20 million tons per anum (450,000 barrels per day) refining capacity, with a more pressing requirement to produce petroleum products of Euro-V standards.
Despite being integral to economic growth, no new refineries have been set up in the country for more than a decade. Only two refineries, including Pak-Arab Refinery Limited (PARCO), whose 60 percent shares are owned by the government, could be set up in Pakistan in the last 40 years. The other four include Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL) and Byco Petroleum Pakistan Limited (BPPL).