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Ogra, downstream oil sector at loggerheads over exorbitant fees

Ogra, downstream oil sector at loggerheads over exorbitant fees

ISLAMABAD: The country’s oil industry and the Oil and Gas Regulatory Authority (Ogra) are at loggerheads over recently notified ‘exorbitant fees’ on downstream oil sector.

A senior oil industry executive told Dawn ahead of annual conference of Petroleum Institute of Pakistan (PIP) that differences between the oil industry and the regulator have reached a point of no return and a serious litigation was on the cards.

The Oil Companies Advisory Council (OCAC) — a representative body of all refineries and marketing companies — has taken up the matter with the regulator and at the highest level of government before moving to the courts.

“Based on detailed discussions within the industry, (the) OCAC submits that there are serious concerns and reservations which if not addressed will threaten the viability of the downstream oil sector,” OCAC Chairman Omar Sheikh told the minister and secretary for petroleum and natural resources and the chairman Ogra.

At the heart of dispute are recently notified Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016. Under these rules, all the oil refineries, marketing and oil pipeline companies are required to pay Rs2 million non-refundable fee for grant, renewal, modification, extension, assignment, review, transfer, amendment, relocation or re-issuance of a licence.

Likewise, oil blending or reclamation or grease plants are to pay Rs50,000 fee while lubricant marketing companies are required to pay Rs1m fee. Oil storage and testing facilities are required to pay Rs100,000 and Rs500,000 fee, respectively.

Moreover, all these entities are also required to pay 50pc of licence fee for modification, extension, transfer or review of their licences. On top of that, every refinery, OMC, lubricant marketing company and pipeline is also required to pay 0.005pc of gross sales.

The new rules also entailed maximum validity of a licence for 30 years for a refinery and renewal for a maximum of 15 years. The OCAC, however, contended that companies once having obtained a licence and operating successfully, contributing to the national kitty and the economy should not have to re-apply for a new licence as no reasons had arose for a fresh one.

The OCAC chairman was of the view that the Ogra Ordinance of 2012 was the primary level and umbrella document under which rules should be issued not in contradiction of the ordinance. He said the ordinance had already ratified the licences of the OMCs and refineries and to now ask these companies to “re-apply for fresh licences is in direct contravention of the ordinance”.

He added that in addition the new rules have now imposed a fee on all the companies at the rate of 0.005pc of gross sales was a form of indirect taxation and given the regulated margin environment in which the downstream oil sector operated was unjustified and a form of double taxation “which the industry is not willing to pay”. Moreover, the rules were notified without prior consultation with the industry.

Ogra Executive Director Shahid Nauman Afzal on the other hand defended the rules saying these were issued under section 41 of the ordinance and will not contradict, supersede or override the ordinance.

Mr Afzal said the rules were prepared in detailed consultation and deliberations of the industry and all stakeholders including OMCs and refineries through OCAC, Lube Oil Business Society of Pakistan and the ministries of petroleum and industries. “Accordingly due consideration were given to the input of all the stakeholders and the rules were notified after vetting by the law and justice division”, he said adding any anomalies or inconsistencies being felt now by the industry must have been conveyed when the rules were in discussion, instead of after their notification in the gazette of Pakistan by the competent authority.

Mr Sheikh on the other hand deplored that concerns raised by the industry had not been considered despite the magnitude and seriousness of the issue. He claimed that detailed discussions referred by the Ogra took place way back in 2005. The rules now notified are not in line with the consultations made 11 years ago. Also the nature of business and industry had changed significantly due to entry of many new players and overall environment change.

“The new rules needed to be forward looking as they will cater for the future and not the past,” said Mr Sheikh. He reiterated that “in violation of Ogra Ordinance section 6, subsection 2 of O and Q clauses, no opinion was collected before the issuance of the rules 2016 to safeguard the public interest and to protect the interest of all stakeholders.

Published in Dawn, April 20th, 2016

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