ECC approves bonded storage of imported petroleum products

ISLAMABAD: In view of recent supply disruptions following the closure of the Strait of Hormuz, the government on Monday formally approved allowing foreign fuel suppliers to establish bonded storage facilities in Pakistan at their own expense for multiple purposes, including re-export and supplies to the domestic market.

Subject to formal ratification by the federal cabinet, the new policy guidelines on “Import on Foreign Supplier’s Account through Customs Bonded Storage Facilities” will come into force immediately. The guidelines have been pending since June 2023.

The guidelines were approved at a meeting of the federal cabinet’s Economic Coordination Committee (ECC), chaired by Finance Minister Muhammad Aurangzeb.

The ECC “approved a summary with [the] proposal of the Petroleum Division to allow [the] import of petroleum products on foreign suppliers’ account through Customs bonded storage facilities,” a statement issued after the meeting said.

“The proposal focused on the development and strengthening of the key pillars of the country’s energy security architecture in the oil and gas sector, including indigenisation, the development of strategic petroleum reserves and the promotion of Customs bonded storage facilities to ensure a resilient and sustainable petroleum supply chain,” an official statement issued after the meeting said.

The recent disruptions in the strategic waterway prompted the government to examine supply-chain vulnerabilities in the context of national energy security.

The Federal Board of Revenue (FBR) had opposed the policy, citing its own collection and monitoring challenges, but almost all other stakeholders supported the petroleum minister’s proposal to proceed with bonded warehouses and engage with key suppliers in the Middle East.

The policy guidelines cleared by the ECC would cover the import of all grades of crude oil, motor spirit (petrol), high-speed diesel (HSD), jet fuel, furnace oil, liquefied petroleum gas (LPG) and liquefied natural gas (LNG) on foreign suppliers’ accounts through Customs bonded storage facilities in Pakistan. The imports would be subject to the product specifications approved by Ogra.

The policy would not, however, cover goods subject to international sanctions binding on Pakistan or those listed in the Negative List of the Import Policy Order, 2022.

The policy covers domestic sales to oil marketing companies (OMCs) and refineries. Foreign suppliers would be able to maintain bonded inventories for local sale at private and public bonded storage terminals, including dedicated storage terminals, at approved locations such as Port Qasim Authority, KPT/Keamari, Hub and Gwadar Port, as well as any other designated ports, including Mahmood Kot and Machike, Sheikhupura.

For imports into bonded storage and re-export, both private and public bonded storage terminals at ports would be approved locations, including those at Port Qasim Authority, KPT/Keamari, Hub and Gwadar Port, as well as any other designated ports, subject to compliance with the relevant laws and regulations of the respective port, marine and other regulatory authorities.

Foreign suppliers, through their consignees, would have access to the national petroleum pipeline network to move bonded inventory from approved port-based locations to inland locations — such as Mahmood Kot and Machike, Sheikhupura — for local sale to licensed OMCs and refineries.

No duty or tax would be triggered by such bonded pipeline movements, while goods declaration (GD) filing requirements would apply.

These guidelines will not affect or alter the existing regime for imports of petroleum products by licensed OMCs and refineries on their own account. The existing OMC import regime will continue unchanged and in parallel with this initiative.

Foreign suppliers, through their consignees, will be allowed to maintain inventories of crude oil and other aforementioned products in private and public bonded storage facilities, including dedicated storage terminals.

Meanwhile, foreign suppliers or their consignees will have the option to develop their own dedicated storage infrastructure or utilise private or public bonded warehouse facilities and dedicated storage terminals, subject to the relevant regulatory approvals under the Customs Act, 1969 and from the relevant port authorities.

The consignee’s bonded storage facility — whether a public bonded warehouse, private bonded warehouse or dedicated storage terminal — will have to be licensed by Customs after fulfilling the requirements for operating as a bonded warehouse.

Additionally, they will not be required to register with the FBR under the Sales Tax Act, 1990, as a condition for commencing operations under this policy.

For domestic sales of bonded goods to OMCs, all sales tax obligations — including registration as an importer under the Sales Tax Act, 1990, filing of returns and payment of sales tax — would apply to and rest solely with the OMC or refinery as the importer of record at ex-bonding.

The foreign supplier and the consignee would have no sales tax registration requirement, return-filing obligation or liability to pay sales tax in respect of domestic sales.

Under the policy guidelines, concessions would be granted to the consignee and the foreign supplier to ensure that they remain tax-neutral in Pakistan in respect of bonded storage, blending, trading and re-export operations.

At the time of storing goods received under the scheme, consignees would not be required to file an Electronic Import Form (EIF) with their GD for in-bonding.

Several system changes would be required to operationalise this arrangement, including a joint State Bank-FBR circular enabling multiple partial EIFs to be drawn against a single in-bond cargo GD, and configuring the Web-Based One Customs (WeBOC) system to track cumulative ex-bonded quantities and accept NOC-based ex-bond GDs.

The consignee may sell bonded goods to licensed purchasers in foreign currency, with the letter of credit or open contract in the name of the foreign supplier and payment made directly into its foreign bank account through an authorised dealer, in accordance with applicable foreign exchange regulations.

Moreover, the sale and purchase of goods between the foreign supplier and Pakistani purchasers would be conducted on a purely commercial basis, without any liability on the part of the government.

Upon the domestic sale of bonded goods, the consignee shall issue a no-objection certificate for the change of ownership.

The OMC or refinery shall file the ex-bond GD, submit the Electronic Import Form through its designated scheduled bank, and pay all applicable customs duty, sales tax and other charges at the rates applicable at the time of ex-bonding. The FBR shall allow the movement of duty-paid products through pipelines or any other mode of transportation and facilitate local purchasers in making input and output tax adjustments.

This policy will not restrict or alter the import rights of OMCs and refineries under the Product Review Meeting (PRM) framework. Upon importation into Pakistan and any subsequent movement between bonded warehouses without a sale, the consignee shall file the in-bond GD. Upon sale to a local purchaser, the purchaser shall immediately file the relevant ex-bond GD.

Regarding pricing, Ogra-regulated prices will apply solely to the onward sale of petroleum products in the country by purchasers from bonded storage and will not restrict the international oil supplier’s unconditional right to re-export bonded goods at any time. Therefore, pricing obligations under Ogra notifications will apply to local purchasers and not to the foreign supplier or the consignee.

Foreign suppliers will retain full pricing flexibility to sell bonded petroleum products to local OMCs and refineries at commercially negotiated prices. Such prices will not be subject to Ogra price notifications.

The customs value of imported goods, for the purposes of assessing applicable customs duties, taxes, levies and other statutory charges, shall be the transaction value prevailing at the time of sale to the local purchaser in Pakistan.

For the avoidance of doubt, if the sale by the consignee and ex-bonding by the local purchaser occur simultaneously, the transaction value applicable on the date of filing the ex-bond GD shall apply.

The government will have the option to requisition bonded products in an emergency, but only where the government has officially declared a formal emergency, including war, armed conflict, a major natural disaster or a complete and documented collapse of domestic supply.

Emergency requisitioning would not apply to routine energy shortages, price fluctuations, geopolitical events that do not cause supply disruptions or government procurement preferences.

The government will have the right to request access to the consignee’s bonded petroleum stocks physically present at all approved bonded storage locations at the time of the request. In such cases, requisitioned goods shall be compensated at the prevailing international market price on the date of requisition, determined by reference to the weekly average of the published Platts price assessment for the relevant product and delivery point. Payment shall be made in any foreign currency within 15 calendar days of delivery.

The government shall submit a formal requisition notice specifying the volume, product and delivery point. However, requisitioned stocks shall be purchased and removed within 14 days of the request. No authority may require the consignee to hold stocks in reserve.

Additionally, the consignee shall report the stocks held at each approved bonded storage location to Ogra on a daily basis, disaggregated by product grade, in a format prescribed by the regulator and entered into a central regulatory database accessible to the relevant regulators.

This reporting obligation shall apply to all products regulated by Ogra and covered by this policy, as well as all approved bonded storage locations.