Credit By: Business Recorder
The Cabinet Committee on Energy (CCoE) is poised to approve amendments to the Refineries Policy 2023 during its scheduled meeting on February 6, 2024. According to well-informed sources, these amendments aim to address implementation issues faced by existing Brownfield Refineries.
The CCoE will review a summary from the Petroleum Division, approved on November 22, 2023, which proposed an extension of the deadline by 60 days (till January 16, 2024) for signing upgrade agreements by refineries to avail incentives under the Policy.
The refineries had raised concerns regarding various issues affecting the viability of their upgrade projects, including customs duty, tax exemption, contractual matters, and cost overruns. Financial and legal consultants were engaged by the Ministry of Energy (Petroleum Division) to examine these proposals.
KPMG analyzed the economic models of refinery upgrade projects and highlighted the impact of discontinuing customs duty and taxation on incentives. The analysis suggested that maintaining customs duty and taxation could significantly improve project economics.
To address taxation issues, KPMG proposed options such as characterizing the CAPEX incentive as a ‘subsidy’ or ‘equity’ from the Government or compensating the shortfall in the CAPEX incentive by enhancing the cap limit and incentive period.
Legal firm M/s Ajuris provided recommendations to address legal and contractual issues in the Upgrade Agreement template finalized by OGRA. These recommendations include adding a section on ‘Force Majeure’ and consequential amendments to other sections of the Policy.
A new section titled ‘Force Majeure’ will be added to the Policy, allowing for timeline extensions due to force majeure events.
The phrase regarding technical constraints in production requirements will be amended to ensure compliance with Euro V standards and a reduction in furnace oil.
M/s Ajuris’ legal opinion, including proposed amendments to the Upgrade Agreement, will be issued to OGRA and refineries to resolve outstanding issues.
Necessary amendments in sections 6 & 7 of the Refineries Policy will be proposed based on the recommendations.
The proposed amendments to the Refineries Policy aim to address Brownfield Refineries’ challenges in implementing upgrade projects. The amendments seek to create a more conducive environment for refinery operations and investments in the sector by considering financial, legal, and technical aspects.
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