Pakistan Oil Refining Policy 2023 for New Greenfield Refineries

Introduction

The Pakistan Oil Refining Policy 2023 for New Greenfield Refineries marks a significant step towards strengthening the country’s refining sector. The policy aims to address the growing demand for petroleum products and petrochemicals, modernize the refining infrastructure, and attract substantial foreign and local investments. This article provides a comprehensive overview of the new policy, comparing it critically with the previous regulations and highlighting its implications for stakeholders.

Background

Refineries are crucial to Pakistan’s energy security and economic growth, providing essential products for transportation, industry, and domestic use. Despite this, Pakistan’s refining capacity has remained stagnant, with no major new projects in decades. The existing refineries primarily use outdated hydro-skimming technology, and there has been a pressing need for deep conversion refineries that can produce a higher yield of valuable products like Motor Gasoline (MS) and High-Speed Diesel (HSD) while minimizing less desirable outputs like Furnace Oil (FO).

Key Features of the New Policy

1. Economic and Strategic Importance:
   • Fuel Security: Ensuring a stable and reliable supply of refined petroleum products.
   • Economic Contribution: Significant contributions to GDP, employment, and ancillary industries.
   • Foreign Exchange Savings: Reducing dependency on imported refined products.
2. Market Overview:
   • Current Capacity: Pakistan’s refining capacity is about 450,000 barrels per day, but utilization is suboptimal due to declining FO demand.
   • Petrochemical Consumption: High dependency on imports, with an annual import bill exceeding USD 2 billion. The policy aims to establish primary petrochemical production facilities within Pakistan.
3. Challenges:
   • Lack of Investment: Historically, inadequate investment has hampered the growth and modernization of the refining sector.
   • Outdated Policies: Previous policies failed to attract sufficient investment, necessitating a comprehensive update to reflect modern technological and market needs.

Objectives of the New Policy

The Pakistan Oil Refining Policy 2023 outlines several objectives to create a conducive environment for investment and modernization:

1. Achieve Energy Security: By increasing self-reliance in refining capacity, the policy aims to reduce dependency on imported refined products.
2. Attract Investments: Providing a stable fiscal and regulatory framework to encourage foreign and local investments in new deep conversion refineries.
3. Promote High-Quality Fuels: Ensuring the production and marketing of environmentally friendly fuels at competitive prices.
4. Infrastructure Development: Supporting the development of oil refining, marketing, and storage infrastructure to boost local crude oil utilization.
5. Employment Generation: Creating direct and indirect employment opportunities through new infrastructure projects.

Incentives and Fiscal Interventions

To overcome the challenges and achieve the policy objectives, the government has introduced a series of incentives:

1. Customs Duty Protection:
   • For refineries with a capacity of at least 300,000 bpd, a 7.5% customs duty on Motor Gasoline and Diesel for 25 years.
   • For refineries with less than 300,000 bpd capacity, a 7.5% customs duty for 10 years.
2. Tax Holidays:
   • A 20-year income tax holiday for refineries with a capacity of at least 300,000 bpd.
   • A 10-year income tax holiday for refineries with less than 300,000 bpd capacity.
3. Exemption from Import Duties:
   • Complete exemption from customs duties, surcharges, withholding taxes, and sales taxes on the import of equipment and materials for refinery projects.
4. Special Economic Zones:
   • Projects may be declared as special economic zones under the Special Economic Zones Act, 2012, or as qualified investments under the Foreign Investment (Promotion and Protection) Act, 2022.

Regulatory and Licensing Conditions

1. Licensing from OGRA:
   • New refineries must obtain a license from the Oil & Gas Regulatory Authority (OGRA) in accordance with the Pakistan Oil (Refining, Blending, Transportation, Storage, and Marketing) Rules 2016.
   • Only deep conversion refineries will be permitted; new hydro-skimming refineries are not allowed.
2. Product Specifications and Export:
   • Refineries must produce products meeting at least Euro 5 specifications.
   • Surplus production can be exported, subject to OGRA’s approval.

Implementation and Validity

1. Coordination by OGRA:
   • OGRA will coordinate approvals from various authorities to facilitate investment and ease of doing business.
2. Superseding Previous Policies:
   • This policy supersedes all previous refining policies for new refineries, except where existing contractual commitments take precedence.
3. Amendments to Existing Laws:
   • Relevant laws and regulatory frameworks will be amended to reflect and implement the new policy.

Conclusion

The Pakistan Oil Refining Policy 2023 for New Greenfield Refineries provides a robust framework aimed at transforming Pakistan’s refining sector. By offering significant fiscal incentives, ensuring regulatory support, and promoting high-quality fuel production, the policy seeks to attract substantial investments and modernize the industry. This comprehensive approach not only aims to meet the growing domestic demand for petroleum products but also positions Pakistan as a competitive player in the regional refining market.

For more detailed analysis and expert legal advice on navigating these policy changes, Josh and Mak International is here to provide tailored support, ensuring your investments and operations align with the latest regulatory developments.