The Oil and Gas Regulatory Authority (OGRA) plans to conduct an audit of oil refineries in an attempt to find out where the billions of rupees collected from consumers on account of duty have disappeared, since refineries have so far not upgraded their plants to produce cleaner fuel.
According to sources, the regulator is concerned over failure of oil refineries to produce fuel compliant with European standards despite collecting the duty, which they had been allowed to receive in order to modernise themselves and set up de-sulphurisation plants.
The refineries are said to have received over Rs 200 billion in deemed duty from consumers since 2002. Currently the duty is imposed on diesel sales only. Earlier, petrol and kerosene consumers were also paying the duty. “Oil refineries have spent 50% of the deemed duty on servicing or clearing their bank loans and declared that they were covering their losses from special reserves under a formula,” a source said, adding that they had only Rs 7 billion in special reserves. A judicial commission, formed by the Supreme Court, had recommended scrapping the duty for it was not achieving the desired objective.
The refineries were scheduled to set up de-sulphurisation plants in 2012, but they got an extension from the government until July 1, 2014. Later, the Economic Coordination Committee (ECC) of the cabinet pushed the deadline to December 2015.
At present, Pak Arab Refinery Company (PARCO) is the country’s only refinery that is producing Euro-II-compliant diesel. Pakistan Refinery Limited (PRL) Managing Director Aftab Hussain said the refineries used to deposit 50% of the deemed duty in special reserves to cover their losses, stressing that since 2002 they had been operating under a formula set by the government.
Now, a new formula, approved by the ECC, would bar them from doing so starting from the next financial year, he said, adding that an Escrow account would be opened to deposit the duty collected from consumers.
According to sources, OGRA is going to start the audit to find out where the duty was spent and why only one refinery has been able to set up the clean fuel-producing plant. Earlier, OGRA had opposed any increase in the rate of deemed duty and insisted that the refineries should establish upgraded plants by the deadline of July 2014. The regulator argued that in case of increase in duty, consumers would be forced to pay an additional $2.5 billion.
Instead, OGRA suggested that the oil refineries should modernise their plants and recover its cost.
Despite the resistance, the ECC has increased the duty from 7.5% to 9%, which will come into force from January 2016.
