Sindh releases PSO oil cargo, relaxes divestment rules till October end, strives for permanent solution
Oil tankers are parked, following the All Pakistan Oil Tankers Owners Association’s protest, demanding tariff hike, increased white pipeline land transport quotas and permission to use old vehicles, in Karachi on September 19, 2023. Photo: Reuters
ISLAMABAD:
The dispute between the Sindh government and the oil industry over the imposition of tax has reached the Special Investment Facilitation Council (SIFC), which has stepped in to mediate and prevent a possible fuel shortage.
Sources told The Express PK Press Club that the Sindh government released the oil cargo of Pakistan State Oil (PSO) after the intervention of the SIFC to avert an impending crisis.
“Following the involvement of the ITFC, the Sindh government has allowed the oil industry to import cargoes till the end of October under the existing commitment mechanism,” the sources added. A Parco cargo ship has already arrived, while two others, belonging to the PRL and the NRL, are expected to land on October 23.
Oil industry officials explained that fuel prices are regulated by the federal government, which incorporates various taxes into the pricing mechanism. “The tax issue is mainly between the provincial and federal governments,” an official said, adding that the industry had requested the federal government to include the Sindh Infrastructure Development Cess (SIDC) in oil prices, like the oil levy and other taxes passed on to consumers.
The Sindh cabinet had earlier ordered the oil industry to provide annual bank guarantees worth Rs 25 billion.
“How can the oil industry deal with such guarantees – and what would happen if the Sindh government decides to use them against oil imports?” » asked an industry representative.
The Oil Companies Advisory Council (OCAC) – an oil industry body – had written a letter to the petroleum secretary to resolve the issue.
The sources said that the petroleum secretary had approached the ITFC, which took action to release the oil cargoes stuck at the Karachi port.
Sources said ITFC was now working to resolve the access rights dispute permanently. The oil industry has suggested that the government incorporate the tax into the oil pricing mechanism, a move that could lead to higher prices for consumers.
The governments of Sindh and Balochistan have imposed the Infrastructure Development Cess (IDC) on POL imports since 1994. The levy was challenged in the Sindh High Court (SHC), which initially granted a stay, but later upheld the payables of the IDC in 2021.
The industry appealed to the Supreme Court, which stayed the SHC order but directed that genuine protection of the pending bank guarantees be maintained.
In July 2023, the Sindh Sales Tax and Excise Department once again reinstated the requirement to submit a local tax and levy declaration before declaring goods.
Following the interventions of the Petroleum Division and OGRA, a provisional arrangement was concluded, allowing the presentation of a commitment in place of bank guarantees.
The imposition of SIDC presents serious financial and operational risks to the downstream industry. Based on estimated cargo movements – worth billions of rupees per cargo – a single 40,000-ton ship costs around $40 million.
The oil industry argues that this is not viable given the industry’s limited credit lines, the submission of IDC’s bank guarantees to banks and/or the PRA’s cost regulation obligations, which will have serious implications for the authorization and price escalation of petroleum products with the government.
The oil industry had sought immediate intervention to direct the FBR and Customs to allow clearance of all POL cargoes without bank guarantee in national interest and safeguard the continuity of the national supply chain. He said the situation requires policy intervention by the federation in fixing prices of petroleum products and establishing exemption of petroleum products from IDC/SDC through appropriate rules.
