Saturday, August 13, 2022
HomeEconomyLong-awaited Refinery Policy steps in to foster refineries

Long-awaited Refinery Policy steps in to foster refineries

June 17, 2021 (MLN): Government has offered a set of incentives to the refineries operating in Pakistan in a recently announced federal budget for FY22, to push their growth momentum towards the upward trail.

In a bid to encourage refineries to upgrade and improve their product slates of MS and HSD at the expense of Furnace Oil whose yield stands at 25-30% currently, government has announced an increase in effective duty protection on Motor Spirit (MS) from 0% to 7.5% on import of crude oil, while maintaining effective duty protection on HSD at 7.5%.

This increase in duty protection on MS is materially positive for the existing local refiners that include Attock Refinery Limited (ATRL), Pakistan Refinery Limited (PRL), National Refinery Limited (NRL) and BYCO, assuming MS price of $71.5/bbl and 70% utilization, annualized impact per share for these refineries stands at Rs22.3, Rs1.7, Rs13.3 and Rs0.8, respectively, a report by AKD securities cited.

Meanwhile, it is important to note that the increase in MS protection duty was not in line with the proposed refinery policy doing rounds earlier, as 10% effective duty protection each on MS and HSD with 0% duty on import of crude had been proposed by the refineries.

However, government announced increment in protection duty for MS only and that too not in accordance with what the refineries had proposed. In addition to this, government imposed 2.5% customs duty on crude oil import. Being a raw material for refineries, this custom duty on crude oil will increase the cost of production and will negatively impact profitability.

Besides, another major incentive being provided to local refineries is a 10-year tax holiday on upgradation and establishment of new deep conversion refineries of at least 100kbpd while upgradation projects of at least 100kbpd of current refineries will also be liable to a 10-year tax holiday. However, minimum limit on upgradation was not part of the refinery policy which was being reported initially and as per news reports, refineries have raised this concern to the authorities, the report said.

Additional measures related to refinery include imposition of 17% sales tax on crude oil which even though is not going to increase costs, will result in buildup of refund claims. Moreover, turnover tax on refineries is also proposed to be reduced to 0.5% from 0.75%.

Despite the increasing demand from refineries to realign the Finance Bill FY22 to the originally agreed basis, as they have objected to the imposition of duties and taxes on crude oil and absence of incentives for the industry, the report was of the view that the proposed policy has the potential to transform the local refinery landscape where local refiners have particularly been provided a lifeline.

In terms of pricing, AKD’s research underlined that ATRL turns out to be the major beneficiary of increase in effective duty protection on MS with ATRL’s MS yield standing at 27% vs. 17%, 10%, and 13% of BYCO, NRL, and PRL respectively.

For the incentives regarding upgradation, BYCO turns out to be the major beneficiary with company meeting minimum capacity requirement set for upgradation while the project is already underway.

At present there are around five refineries in the country with a total refining capacity of 417,400 barrels per day. The new policy aims to change the existing state of affairs and transform the sector over the next five years through the extension of tax holidays and other fiscal benefits.

Copyright Mettis Link News

Posted on: 2021-06-17T17:36:00+05:00


- Advertisment -

Most Popular