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Oil industry, Ogra talks on fee structure hit snag

Oil industry, Ogra talks on fee structure hit snag

ISLAMABAD: The crucial talks between the Oil and Gas Regulatory Authority (Ogra) and the oil industry over the new fee structure could not make any progress on Tuesday owing to oil companies’ refusal to withdraw from ongoing litigation.

However, the two sides agreed to constitute a six-member committee, three each from both sides to continue with talks on the issue, informed sources told Dawn. The Ogra team led by its newly appointed chairperson Uzma Adil Khan also asked a delegation of the Oil Companies Advisory Committee (OCAC) to submit its recommendations in writing to move forward.

The sources said Ogra’s team comprised three executive directors while the OCAC delegation comprised its chairman Jawad Chaudhry and managing directors of Pakistan State Oil (PSO), Attock Oil and OCAC.

According to sources, Ogra requested the Islamabad High Court to vacate a stay order issued on a petition of OCAC challenging the legality of the new fee structure under the ‘Pakistan Oil (Refining, Blending, Transportation, Storage and Marketing) Rules 2016’. The court rejected the application while the oil industry also declined to withdraw its case on Tuesday.

The two sides are at loggerheads over the ‘exorbitant fees’ on downstream oil sector imposed under the rules notified early this year. The OCAC has expressed serious concerns and reservations over the fee structure saying if not rescinded would threaten the viability of the Downstream Oil Sector. These rules required all the oil refineries, marketing companies and oil pipeline companies 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 50 per cent 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 0.005 per cent of gross sales. This 0.005pc fee of the gross sales in particular is being viewed by the oil industry as a ‘sales tax’ which it argued could only be imposed by the government and was outside the purview of the regulator.

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 reapply for a new licence as no reasons had arose for a fresh one.

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

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.

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

Mr Afzal noted in his communications to the industry that 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.

The OCAC deplored that concerns raised by the industry had not been considered despite the magnitude and seriousness of the issue. Mr Afzal claimed that detailed discussions referred by the Ogra took place way back in 2005 (11 years ago).

However, OCAC argued that rules notified now are not in line with the consultations made 11 years ago while the nature of business and industry had changed significantly due to entry of many new players and overall environment changed.

Published in Dawn, August 3rd, 2016

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