ISLAMABAD: Federal government has decided to offer a lucrative package of five-year tax holidays to encourage the oil refineries to upgrade their infrastructure and revert to producing fuels compatible with the international standards, WealthPK reported on Monday.
Under the proposed Pakistan Oil Refinery Policy, 2021 the oil refineries were given the December 2021 deadline to come up with their respective up-gradation plans to take advantage of the incentives offered in the policy.
The refineries willing to revamp their plants would be given incentives, including five-year tax holidays on import of crude oil and tariff protection in their prices, which will earn them additional revenue to invest, upgrade and remain in the business.
“After submitting the revival plans, the refineries will be required to fully implement the plans in five years, meaning they would have to fully upgrade their system by the years 2026-27,” it is proposed in the policy.
Currently, five refineries are operating in the country with an overall crude oil refining installed capacity of 417,400 barrels per day (BPD). Pak Arab Refinery Limited (Parco) has 100,000 BPD oil refining capacity, Attock Refinery Limited (ARL) 53,400 BPD, Byco Petroleum Pakistan Limited (Byco) 150,000 BPD, National Refinery Limited (NRL) 64,000 BPD and Pakistan Refinery Limited 50,000 BPD, according to the Economic Survey 2019-20.
As per the data, Pakistan’s total consumption of petroleum products stood at 19.68 million tonnes (MTs) during the fiscal year 2019-20, out of which 11.59 MTs were secured through local refineries and 8.09 MTs through imports.
The total petrol consumption in the country is about 7.6 MTs per annum, out of which 30% is catered to from local refineries and the rest is imported to meet the local demand.
Similarly, the consumption of diesel is around 7.3 MTs per annum. The local production meets 65% of the total demand, while the rest is imported.
Some US$4.9 billion worth of finished petroleum products were imported in 2020-21 compared to US$2.32 billion imported in 2019-20.
The oil refineries still produce 30% to 40% furnace oil while refining the crude oil, whereas the consumption of furnace oil saw has seen a big dip in Pakistan from 9.6 million tonnes in 2016-17 to less than three million tonnes in 2020-21.
The refineries in Pakistan have configured their plants in a way to produce mainly diesel, furnace oil, and petrol. Four refineries are based on hydro-skimming technology, producing approximately 40% to 45% of diesel, 30% to 40% furnace oil, and 15% to 20% petrol, based on the type of crude they process.
So, the sharp reduction in the demand for furnace oil used in the country has also constrained the local oil refineries to run at full capacity as the furnace oil storage capacity and its disposal has become a major issue for them.
The sprucing up of the existing refineries would help them reduce the furnace oil production to less than 20% and enhance the production of environment-friendly fuels like Euro-5 and Euro-6.
The upgradation would also help cut imports of refined products substantially and save a net US$5-6 per barrel on import substitution at local refineries.
Under the proposed Pakistan Oil Refinery Policy 2021, tax would be enhanced on the imports of finished products, and the government would utilise this amount toward the refurbishment of the oil refineries on a 30-70 basis, meaning the government would contribute 30% of the total upgradation cost, while the rest would be borne by the refineries themselves.
Byco, the single largest oil refinery in Pakistan with an installed processing capacity of 155,000 barrels per day of crude oil plans to invest US$800 million on restructuring with the addition of different types of 14 units to convert the out-of-demand furnace oil into the advanced quality of Euro-5 and Euro-6 petrol and diesel, Byco Petroleum Chairman Mohammad Wasi Khan had told the media recently.
“We will stand fully upgraded over the next three to four years. As per our plans, we are to implement an upgradation plan by the year 2025,” he said.
The other refineries would also be working on the refurbishing of plants to take full advantage of the incentives given by the government.
The government also plans to attract some US$10 to US$15 billion investment from Saudi Arabia and UAE for the establishment of a deep conversion refinery and petrochemical complex in Pakistan. -INP
