Pakistan approves tax break for refineries to produce Euro 2-compliant gas oil

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Pakistan has approved raising the tax break offered to refiners on high speed diesel to 9% from 7.5%, to help them recover the cost of upgrading their plants to produce Euro 2-compliant gasoil, a government official said. The Economic Coordination Committee, Pakistan’s highest decision making body, on Friday evening decided to raise the tax break, an official of the Ministry of Petroleum and Natural Resources who attended the meeting confirmed on condition of anonymity. The tax break, commonly known as “deemed duty” will take effect from January 1, 2016, on the condition that refiners have fulfilled their commitment to set up hydro-desulfurizers at their plants, Asim Hussain, advisor to the Prime Minister on energy matters, said March 5. The tax break will stay in place until refiners have recovered the cost of the upgrades. Under Pakistani law, the “deemed duty” cannot be raised without raising the import tax on gasoil, so the ministry has also proposed increasing the customs duty on imported gasoil to 9%. Pakistan relies on imports to meet 70% of its gasoil demand of 7.2 million mt/year (147,200 b/d). The tax break will help refiners save around Rupees 1/liter (1 cent/liter), said Aftab Hussain, CEO of Pakistan Refinery Limited. So, a refiner selling 1 billion liters/year could save Rupees 1 billion or $100 million, he added. Separately, the Economic Coordination Committee has accepted the petroleum ministry’s demand to extend the deadline for refiners to start producing Euro 2-compliant diesel to December 31, 2015, from June 2014. This is the second time the deadline has been pushed back from its original start in 2012. In order to meet the tighter specifications, refiners are required to upgrade their plants by adding a hydro desulfurization unit, allowing them to cut the sulfur content in gasoil to 0.05% from the current 1%. All refiners, except Pak Arab Refinery Co., had said they could not meet the June 2014 deadline due to the ongoing financial crisis.