Sindh releases PSO oil cargo, relaxes cess rules till October end, efforts underway to find permanent solution
Parked oil tankers are seen, following the protest by the Pakistan Tanker Owners Association, demanding the increase in tariffs, the extension of the quota for transport by land white pipelines and the 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 a levy has reached the Special Investment Facilitation Council (SIFC), which has stepped in to mediate and prevent a possible fuel shortage.
Sources told The Express PAkGazette that the Sindh government released the oil cargo of Pakistan State Oil (PSO) after the SIFC’s intervention to avert an imminent crisis.
“Following the involvement of the SIFC, the Sindh government has allowed the oil industry to import cargoes till the end of October as per the existing commitment mechanism,” the sources added. One shipment from Parco has already arrived, while two others, belonging to PRL and 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 cess issue is essentially 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, similar to the oil tax and other taxes passed on to consumers.
The Sindh cabinet had earlier directed the oil industry to provide annual bank guarantees worth Rs 25 billion.
“How can the oil industry manage such guarantees and what happens if the Sindh government decides to collect them for 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.
Sources said the Petroleum Secretary had taken up the matter with the SIFC, which swung into action to free oil cargoes stuck in Karachi port.
Sources said the SIFC is now working to resolve the severance dispute permanently. The oil industry has suggested that the government incorporate the levy into the oil pricing mechanism, a move that could lead to higher prices for consumers.
The governments of Sindh and Balochistan have imposed Infrastructure Development Cessation (IDC) on POL imports since 1994. The levy was challenged before the Sindh High Court (SHC), which initially granted a stay but later upheld the enforceability of IDC in 2021.
The industry appealed to the Supreme Court, which stayed the SHC order but ordered that genuine protection of bank guarantees continue sub judice.
In July 2023, the Sindh Sales Tax and Excise Department reinstated the requirement to file a local tax and levy return before Goods Declaration.
Following interventions by the Petroleum Division and OGRA, a provisional agreement was reached allowing for the submission of a commitment in lieu of bank guarantees.
The imposition of SIDC poses serious financial and operational risks for the downstream industry. Based on estimated cargo movements (worth billions of rupees per cargo), a single 40,000-ton vessel costs around $40 million.
The oil industry says it is unsustainable given the industry’s limited credit lines, IDC’s submission of bank guarantees to banks and/or PRAs’ duties on regulated costs, which will have serious implications for the liquidation and rising price of petroleum products for the government.
The oil industry had urged immediate intervention to direct FBR and Customs to allow clearance of all POL cargoes without bank guarantees in national interest and to safeguard the continuity of the national supply chain. He said the situation requires political intervention by the federation in pricing of petroleum products and establishment of exemption of petroleum products from IDC/SDC through appropriate rules.
