ISLAMABAD (June 22 2009): In addition to giving \'deemed duty\' to oil refineries, the subcommittee of Economic Co-ordination Committee (ECC) of the Cabinet, as per ex-refinery oil pricing formula, has recommended to provide additional amount of Rs 1.20 per litre on high speed diesel (HSD) to recover the cost of hydro-desulphurisation (HDS) project for upgrading of petroleum products.

Sources told Business Recorder that the hydro-desulphurisation project would be recovered over a period of five years, effective from January 1, 2010. According to recommendations of subcommittee, EPC contract for HDS project would be awarded by December 31, 2009, operational by July 2012.

Sources said that after award of contract, as per mechanism agreed by subcommittee of ECC, the estimated per litre cost worked out would be adjusted against petroleum development levy (PDL) (surcharge from next financial year) on HSD price, and Finance Division will disburse it on monthly basis, on receiving duly audited/certified claims by oil refineries.

Sources also noted that if any refinery failed to commission the project according to timeframe, the entire amount, along with interest, would be deposited by the refinery in government treasury immediately. The refinery will also be bound not to market HSD of inferior quality. The subcommittee has also recommended that per litre cost for HDS project would not be passed on to the consumers, and will be adjusted on PDL (surcharge from next financial year 2009-10).

The ECC body has also recommended renaming the much-criticised \'deemed duty\' for oil refineries as \'processing fee\'. The subcommittee of ECC has recommended to increase \'deemed duty\' from existing 7.5 percent to 10 percent for oil refineries ,including National Refinery (NRL), Pakistan Refinery (PRL), Attock Oil Refinery, and Bosicor Pakistan (BPL).

Oil refineries have been enjoying 10 percent \'deemed duty\' since 2002. It was reduced to 7.5 percent on July 31, 2008 when oil prices shot up to $147 per barrel in international market.

The subcommittee, headed by Advisor to Prime Minister on Petroleum and Natural Resources, Dr Asim Hussain, will submit its report to ECC for approval.

The \'deemed duty\' was being given to oil refineries since 2002 to establish desulphuration plants aimed at reducing sulphur content from 1 percent to 0.05 percent in high speed diesel (HSD). But the refineries failed to set up plants to reduce the sulphur content and they have been selling HSD of inferior quality.

Instead, subcommittee has recommended to give the cost of the desulphuration project from PDL (to be renamed as \'surcharge\' from next financial year) to benefit the oil refineries. Both \'surcharge\' and \'deemed duty\' would be collected from the consumers on petroleum products to benefit the oil refineries that have already earned billions in profits. The \'deemed duty\' contributed much to oil refineries\' profits, sources said.

Total consumption of HSD in the country is about 8 million tons every year, and about 50 percent is imported, while 50 percent is locally produced. Local refineries can only produce HSD containing 1 percent sulphur (inferior quality), while imported diesel contains 0.5 percent sulphur (superior quality).

These oil refineries have been charging the price of higher quality, whereas they produce inferior quality diesel with 1 percent sulphur content, which is otherwise banned throughout the world.

The oil refineries have also submitted profits earned during 1998-2008. ARL, PRL, NRL, Bosicor and Parco earned profit amounting to Rs 60.3 billion during the last 10 years. Parco earned a profit of Rs 40.218 billion during eight years. The NRL profit is Rs 7.397 billion; PRL: Rs 7.221 billion; ARL: Rs 5.120 billion; and Bosicor: Rs 419 million.