Pakistan OMCs_ Investment package best thing since sliced bread, (AKD Daily, Jul 20, 2020)
AKD Daily
Pakistan OMCs: Investment package best thing since sliced bread
- In an acknowledgement of deep rooted inefficiencies in the regulatory system governing mid and downstream oil investments in the country, a stream of news reports over the week have raised the likelihood of a major investment package of tax reliefs, relaxation of regulations and margin autonomy for the space
- For OMCs key initiatives of a material nature include relaxation of limits on provincial retail expansion (previously tied to provincial storage CAPEX) and the removal of ECC/Cabinet approval as a pre-condition for annual OMC margin hikes minimizing the negative burden of delayed hikes
- Refinery sector packages are demarcated between Greenfield expansions and Brownfield expansions of at least 100,000bpd providing exemption on taxes incurred on CAPEX (inclusive of import duties), 20yr income tax holiday amongst other incentives (provision for easing single point mooring for offloading crude)
- We believe the long cycle CAPEX investment in the nation’s mid-stream infrastructure face hurdles to materialization, unless pricing reforms. That said, national oil companies (Aramco, PARCO) in a bid to guarantee end market demand, may consider investment regardless as accompanying crude supply contracts confirm offtake in a market of increasing prominence.
- Policies specifying pathway to deregulation will be a step in the right direction, in our view, as deregulation will ensure competitiveness while alsodecreasing the uncertainties regarding inventory/exchange losses, increasing the earnings quality of the companies.
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