The government is set to increase IFEM by Rs 2.5 per liter on POL products

• An increase of Rs 2.5 per liter IFEM is proposed as an interim funding measure.
• Exemption from sales tax makes refinery upgrades unsustainable.
• The refinery upgrades are aimed at producing Euro V compliant POL.
  

ISLAMABAD: The Executive Committee of the Special Investment Facilitation Council (SIFC) on Wednesday asked the Petroleum Department to come up with a way forward within a week to start upgradation projects worth $5-6 billion for the local refineries.

Federal Minister for Planning and Special Initiatives Ahsan Iqbal presided over the committee meeting.

The authorities have decided to increase the inland freight equalization margin (IFEM) by Rs 2.5 per liter for petrol, diesel, kerosene and light diesel oil. The additional revenue will be transferred to ESCROW accounts, allowing refiners to use the funds as part of an incentive package.

The amount will be used for upgrading projects. However, this would be a temporary arrangement until the next budget.

In the SIFC meeting, Ogra was asked to work out the impact of the increase in IFEM and for this purpose a summary will be prepared by the Petroleum Department to be placed before the ECC for approval.

However, Parco which has a market share of 48% is not in favor of raising the IFEM saying it is an ad hoc arrangement. He says the government is called upon to eliminate the sales tax anomaly through the budget.

This middle ground, the official said, was found after the government failed to resolve the issue of exemption from sales tax on POL products imposed in the 25th budget.

This has prevented refiners from signing the implementation agreement with Ogra, which is mandatory before starting their respective $5-6 billion upgrade projects.

Upgrading the refineries would ensure minimum production of furnace oil and maximum production of finished POL products at par with Euro V specifications.

Refiners say the sales tax exemption has nullified the $1.65 billion stimulus package offered through the ESCROW account, leading to a $1.152 billion loss due to the impact of sales tax exemption. They argue, according to the official, that this change has made their upgrading projects economically unviable and unsustainable.

Shifting from zero rate regime to exemption regime for sales tax on MS, HSD, kerosene oil and LDO will increase the cost of upgradation project manifold.

However, the SIFC meeting, the official said, appreciated the efforts of the Petroleum Directorate, its team and the 20-member task force, headed by Deputy Prime Minister Ishaq Dar, for finalizing and approving the Consent Implementation Framework by Ecnec for the enforcement of the amended E&P policy 2012, allowing the private sector to purchase 35% of gas from new gas discoveries in the auctioned prices.

However, to make JJVL’s LPG plant operational, Sui Southern said it is working on the new structure, but it is yet to be finalized. Since the federal petroleum minister did not attend the meeting, the SIFC decided to adjourn its matter till December 31.

Similarly, the matters of Cenergyico Pk Limited regarding oil levy and supply of natural gas to National Steel Complex have also been postponed till December 31, 2024.