Introduction
The Petroleum Products (Development Surcharge) Rules, 1967, were established by the Government of Pakistan to regulate the development surcharge on petroleum products. These rules were notified in the Gazette of Pakistan Extraordinary on March 29, 1967, by the Ministry of Petroleum & Natural Resources and have been updated periodically to reflect changes in the regulatory framework and industry practices. The rules outline the procedures for determining the prescribed price of petroleum products, the responsibilities of oil distribution companies, and the method of surcharge collection and payment.
Definitions
The rules begin with definitions that clarify key terms used throughout the document:
- Director: The Director Oil Operations or any authorized officer by the Federal Government.
- Gallon: Refers to the Imperial Gallon.
- Ordinance: The Petroleum Products (Development Surcharge) Ordinance, 1961.
- Schedule: A schedule appended to these rules.
- Ton: Long Ton of 2240 lbs.
Prescribed Price for Oil Distribution Companies
The prescribed price of petroleum products for oil distribution companies, excluding refineries, is determined by the Director. This includes:
- Cost and Freight (C&F): Based on authorized imports or, for domestic products, the Free on Board (FOB) cost.
- Marine Insurance: Actual rates payable, including war risk insurance during a state of war or emergency.
- Ocean Losses: Calculated as an incidence per litre or per tonne at specified percentages on C&F.
- Statutory Charges: All duties, taxes, user charges, and other levies by government or statutory bodies.
- Distribution Margin: A charge determined by the Director to cover depreciation, interest on fixed assets, and other expenses.
- Inland Transportation Expenses: Expenses incurred by companies on the inland transportation of petroleum products.
Variation in Prescribed Price Elements
Any variations in the elements of the prescribed price are reflected from the first of the following month, except for statutory charges, which take immediate effect.
Excess of Depreciation and Interest
The government may allow an increase in the distribution margin for companies with higher fixed asset costs, based on auditor reports and original cost documentation.
Inland Transportation Expenses
Expenses on inland transport are adjusted monthly against the inland freight equalization margin. These include depreciation on company-owned vehicles and a 6% interest on their written-down value, excluding expenses for unrecognized storage, demurrage, and transportation by road where rail or pipeline is available.
Prescribed Price for Refineries
The prescribed price for refinery-produced petroleum products is determined by the Director, considering the common elements in the imported products’ prescribed price and each refinery’s specific circumstances.
Payment of Development Surcharge
The development surcharge is paid, deposited, or refunded similarly to any duty of excise or customs duty.
Schedules
The rules include schedules detailing the nomenclature of petroleum products used domestically and internationally, ensuring consistency and clarity in the application of the rules.
Key Provisions of the Rules
- Production Programs: Refineries must submit bi-annual production programs for approval, considering the country’s economic interests and market demands.
- Specifications Approval: Refineries and importers must obtain approval for product specifications from the Authority.
- Minimum Stock Requirements: Refineries and marketing companies must maintain specified minimum stocks of crude oil and petroleum products.
- Information Submission: Regular submission of production, sales, and inventory information to the Authority is mandatory.
- Inspection and Compliance: Authorized personnel may inspect facilities to ensure compliance with the rules.
- Penalties: Breaches of the rules may result in penalties, including imprisonment and fines.
Amendments and Updates
The rules have undergone several amendments to keep up with the evolving industry landscape. Notable amendments include:
- Substitution of terms like “Development Surcharge” with “Petroleum Development Levy.”
- Modifications to the roles and responsibilities of the Oil and Gas Regulatory Authority (OGRA).
- Updates to the prescribed prices and statutory charges to reflect current economic conditions.
Conclusion
The Petroleum Products (Development Surcharge) Rules, 1967, play a crucial role in regulating the pricing and distribution of petroleum products in Pakistan. They ensure transparency, fairness, and efficiency in the market while safeguarding the economic interests of the country. Compliance with these rules is essential for oil companies operating in Pakistan, as it helps maintain a stable and well-regulated petroleum sector. For detailed guidance and legal support regarding these rules, Josh and Mak International is well-equipped to assist clients in navigating the regulatory landscape effectively. We can be contacted at [email protected]
