The Cabinet Committee on Energy (CCOE) has taken a diverse approach to dealing with two sectors of the same industry; power and refinement.

Pakistan’s refining sector meets the country’s strategic requirements as it also produces jet fuel for airlines and the air force. However, for the second time now, the CCOE has refrained from giving clear approval to the refining policy as it raised comments on the proposed 10% tariff incentives for petroleum refineries. Reservations were made despite the Petroleum Division sharing a detailed breakdown of the alleged refinery collection and investment.

Meanwhile, a private sector power plant has been given the green light to make payments despite clear advice from the National Accountability Bureau (NAB) to collect dues from the 12 PPIs, including Nishat Chunian, under the 2002 Power Policy. .

NAB had filed a case against Nishat Chunian Power Ltd because of the determination of the highest tariff. He further suggested that “the Ministry of Energy, if it wishes, can proceed under the 2002 energy policy after obtaining the amount of losses caused to the State as established in during the aforementioned NAB investigation in the best interest of the State ”.

The NAB wanted the government to recover illegal earnings from PPIs put in place under Power Policy 2002 before continuing with the payment process.

However, the CCOE stopped the payment to Nishat Chunian while ordering the Electricity Division to make the payment to 11 PPIs set up under Power Policy 2002.

Officials familiar with the case said it was the result of a struggle between different groups on the cabinet committee.

The government also formed a Cabinet Committee on Transportation and Logistics and its mandate was to resolve freight, transportation and logistics policy issues. However, the transport committee intervened in the affairs of the petroleum division and ordered all refineries to submit the details of the alleged duty collection.

Thus, the CCOE dealt on the one hand with the oil refineries and on the other hand with the logistics committee, which went beyond its mandate. As a result, refinery policy has shifted back and forth between the Energy Division and CCOE.

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The oil division had informed CCOE that the oil refineries had made the same investment of Rs200 billion, which they collected.

Why were oil refineries allowed to reclaim deemed rights?

In a letter to the Transport and Logistics Committee, the Managing Director of Pakistan Refinery Limited (PRL) said that there is a serious misunderstanding that the fees collected by a refinery are intended to be used for investment.

The correct legal status is that refineries benefiting from the tariff protection policy are required to create a “special reserve” account in accordance with government directives issued on June 25, 2002.

He said a refinery’s special reserve account will be credited with this amount of after-tax profit, which remains after the distribution of the qualifying dividend.

Refineries are required to invest in their expansion and modernization projects from the special reserve account.

It is important to note that at the start of this policy from 2002 to 2013, refineries were also allowed to offset their losses on the special reserve account.

He said that this is a factual explanation, which clearly shows a flawed assumption that the full amount of alleged duties collected by a refinery will have to be invested.

A relevant excerpt from that letter further states: “The main objective of the tariff protection formula was to remove the minimum rate of return requirement of 10% and to induce petroleum refineries to operate on a self-financing …, the net profit after taxes above 50% will be allocated to a special reserve to compensate for any future loss or to make an investment for the expansion or modernization of refineries. “

It is clear that the primary objective of the tariff protection formula was to help refineries operate independently without any government subsidy.

Subsequently, the deemed duties on kerosene, LDO and JP-4 were completely abolished as of June 10, 2007, then as of August 1, 2008, the deemed duties on diesel were reduced to 7.5 %.

AF Ferguson & Co audited the amount accumulated in the special reserves according to the pricing formula and ENAR Petrotech Services (Pvt) Limited carried out a technical audit of the installation of the isomerization unit. These audit reports have already been submitted.

Interestingly, the major stock brokers reportedly made money manipulating the shares of two refineries; Attock Refinery Limited and National Refinery Limited.

The Department of Energy informed the CCOE on Thursday that the NAB wanted the government to recover illegal gains from PPIs, including Nishat, before continuing with the payment process.

The petroleum division started working on the new refining policy and the first draft was drawn up in 2019 when Nadeem Babar was the prime minister’s special assistant for petroleum.

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Since then, there had been manipulation of ARL and NRL shares on the stock exchange. ARL’s share price went from Rs70 to Rs 275 and NRL went from Rs 90 to Rs 650.

The shares of these refineries continued to rise and fall in favor of some key players in the stock market.

The Ministry of Energy had also informed the government cabinet responsible for energy that it should revise the framework agreement signed with the IPPs as part of the Power Policy 2002.

Regarding the manipulation of stocks, the Securities and Exchange Commission of Pakistan (SECP) said: “The SECP, among others, has a mandate to maintain fair, orderly and efficient capital markets, to promote the business and insurance sectors. sound and protect the rights of investors through favorable regulations. In order to carry out its regulatory functions, the SECP regularly carries out inspections, inquiries, investigations and takes any other regulatory action, as deemed necessary, in accordance with its administered legislation.

He added, “However, due to SECP’s operational SOPs and relevant laws, unless a case is concluded, we cannot confirm or deny the initiation of any alleged action or proceeding against a regulated entity or person. Please note that any finding, decision or final implementing action, if any, is made public by way of placement on the SECP website for public information, subject to the policy of the Commission and of the authorization under the law.

Posted in The Express Tribune, September 19e, 2021.

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