- Rs2.5 per litre IFEM hike proposed as interim funding measure.
- Sales tax exemption makes refinery upgrades unsustainable.
- Refinery upgrades target Euro V-compliant POL production.
ISLAMABAD: The Executive Committee of the Special Investment Facilitation Council (SIFC) on Wednesday directed the Petroleum Division to devise a way forward within a week to kickstart $5-6 billion worth of upgrade projects for local refineries.
The committee meeting was chaired by Federal Minister for Planning and Special Initiatives Ahsan Iqbal.
Authorities have decided to increase the inland freight equalisation margin (IFEM) by Rs2.5 per litre on petrol, diesel, kerosene, and light diesel oil. The additional revenue will be shifted to ESCROW accounts, allowing refineries to utilise the funds under an incentive package.
The amount would be used for upgrade projects. However, this would be a temporary arrangement till the next budget.
In the SIFC meeting, Ogra has been asked to work out the impact of increase in IFEM and to this effect a summary would be prepared by the Petroleum Division that would be pitched before the ECC for approval.
However, Parco that holds 48% market share is not in favour of increasing the IFEM saying it is an ad hoc arrangement. It says the government is required to do away with the anomaly of sales tax through the budget.
This middle way, the official said, has been found after the failure of the government to resolve the issue of sales tax exemption on POL products imposed in the budget for FY25.
This has barred the refineries from signing the implementation agreement with Ogra which is mandatory prior to initiating their respective upgrade projects of $5-6 billion.
The upgradation of refineries would ensure minimum production of furnace oil and maximum production of finished POL products on a par with the Euro V specifications.
The refineries say the sales tax exemption has nullified the incentive package of $1.65 billion offered through ESCROW account, leading to $1.152 billion loss due to impact of sales tax exemption. They argue, according to the official, this alteration has made their upgrade projects economically unsound and unsustainable.
The shift from zero-rated status to exempt status for sales tax on MS, HSD, kerosene oil and LDO will increase the cost of upgrade project manifold.
The SIFC meeting, however, the official said, appreciated the endeavors of Petroleum Division, its team and 20-member task force, headed by Deputy Prime Minister Ishaq Dar, for finalising and getting approved the consensus implementation framework from Ecnec to enforce amended E&P policy 2012, allowing the private sector to purchase 35 percent of gas from new gas discoveries at the auctioned prices.
However, to make JJVL LPG plant operational, Sui Southern said it was working on the new structure but it was not finalised yet. Since federal minister for petroleum was not part of the meeting, the SIFC has decided to defer his issue till December 31.
“Likewise, the issues of Cenergyico Pk Limited on petroleum levy and supply of gas to the National Steel Complex have also been deferred by December 31, 2024.”
