KARACHI: The Oil & Gas Regulatory Authority (OGRA) has proposed measures to mitigate operational losses faced by refineries due to the sales tax exemption on petroleum products and suggested extending the deadline for signing upgrade agreements under the Brownfield Refinery Policy 2023.
In a letter to the Petroleum Division’s Director General (Oil), OGRA highlighted that refineries have hesitated to finalize upgrade agreements, citing financial uncertainties arising from the sales tax exemption introduced in the current fiscal year’s finance bill.
Proposed Recovery Mechanism
OGRA recommended that refineries submit detailed claims for operational losses to the Federal Board of Revenue (FBR), with approvals routed through the Economic Coordination Committee (ECC). These claims should specify:
Total lodged sales tax amounts.
Reimbursements received from the FBR.
Any remaining unadjusted sales tax.
To address funding, OGRA suggested limiting the recovery period for reimbursements from the Inland Freight Equalisation Margin (IFEM) to FY 2024-25 as an interim measure, with payments made as lump sums or staggered installments, depending on the impact on IFEM.
Extension of Upgrade Agreement Deadline
The original October 22, 2024, deadline for signing upgrade agreements has already passed, with refineries reluctant to proceed due to unresolved disputes, including sales tax exemptions. OGRA emphasized that signing the agreement with Cnergyico Pakistan Limited (CPL) should only proceed after finalizing a deed of settlement with the federal government.
The regulator proposed extending the deadline for agreements under the Existing/Brownfield Refinery Policy, 2023, while addressing the concerns raised by refineries. OGRA further urged the Petroleum Division to escalate the issue to relevant forums, such as the Special Investment Facilitation Council (SIFC), for resolution.
Industry Concerns and Consumer Impact
Earlier this month, refineries jointly appealed to the government to resolve disputes over the sales tax exemption. They cautioned that delays have stalled agreements and estimated that recovering costs retrospectively from July 2024 could impact consumers by Rs2.05 per litre over six months.
OGRA’s proposals aim to address these challenges while balancing refinery sustainability and consumer interests.
Story by Tanveer Malik
