Prices for gasoline and diesel are likely to go up because of tariffs.
The News reported on Sunday that a tariff protection incentive given to local refineries could cause the price of motor gasoline (MS) and high-speed diesel (HSD) to go up by Rs3 per litre. This was shown in a summary of the new refining policy by the Petroleum Division.
The Petroleum Division has put together a summary of the Pakistan Refining Policy for 2023 for the Cabinet Committee on Energy to look over next week.
The News had a copy of the summary, which said that if the incentive tariff protection was given, the price of both MS and HSD would go up by Rs3 per litre. This is because the incentive tariff protection would be the same as adding 10% and 25% to the customs duty on MS and HSD, respectively.
The official document said that the government made Petroleum Policy 1997 in October 1997. It was changed in 2002. Instead of a minimum guaranteed rate of return of 10% for refineries, a tariff protection formula was put in place: a 10% deemed duty on HSD, a 6% deemed duty on SKO, LDO, and JP-4, and a 6% deemed duty on SKO. But in 2008, only 7.5% of HSD was covered by the tariff protection.
“The tariff protection couldn’t attract investment in the sector in the form of a new refinery or an upgrade to existing refineries and needs to be improved,” the summary said.
In the summary, it was said that building a new refinery takes a long time and a lot of money, so there needs to be a policy and some good incentives in place. It said that this was still being worked on and would be put in front of the Economic Coordination Committee of the cabinet. When it comes to refineries that already exist, the policy has been updated to include the changes that were agreed upon by the refineries and government bodies.
It said that crude oil from both the United States and other countries was refined at five refineries, which were kept up-to-date to meet fuel standards.
But the government has been asking refineries to upgrade their plants even more by making fuels that meet Euro-V standards and making as little furnace oil as possible. This required a capital investment of $4 to $4.5 billion, according to the summary.
It said that the refineries have to come up with the money themselves or borrow it from local lenders on business terms. They also have to improve their balance sheets in order to get the money.
According to the summary, local refineries need financial help from the government because they have been losing money for the past five years and need to improve their financial situation so they can upgrade.
The summary said that if nothing is done, the local refining sector could fail and shut down. In that case, about 70,000 barrels of crude oil per day would have to be shipped out of the country. While bringing in multiple petroleum products instead of just one, like crude oil, will add to the growing traffic at our ports.
“Such a situation could discourage investment in oil and gas exploration, make the supply chain of strategic fuels more vulnerable, and put more stress on our balance of payments,” the report said.