ISLAMABAD: The Oil and Gas Regulatory Authority (Ogra) has declined to allow Byco Refinery, the country’s recently completed largest refinery, to carry out commercial operations unless it provides an international certification against oil spill from its Single Point Mooring (SPM) inside the deep sea --- the first in Pakistan.

A senior Ogra official told Dawn on Sunday that the authority had also declined to accept a guarantee from the Byco Group to take responsibility for any oil spill from the SPM.

“Oil spill is a very serious and sensitive environmental and safety issue globally and we cannot compromise on it as a regulator,” he said. “We cannot permit commercial operations unless we are satisfied with safety and security of the oil facility according to international standards.”

The Byco management wants to start commercial operations as early as possible as it has already completed a test run for the second-hand refinery relocated from abroad as well as for the SPM facility.

The Ogra official said the Byco management had informed the regulator that a European international oil spill control agency had declined to send its inspection team to Pakistan for security reasons. The refinery offered to take full responsibility and provide guarantee against any safety issue, including oil spill, but the regulator refused to accept it.

He said the Byco management had been advised to make arrangements for a third party certification as an alternative option which could be obtained from a number of such companies operating in Singapore and the Middle East.

The official said oil spill from deep sea mooring facilities was rare and Byco might have put in place enough safety measures, but Ogra being a regulator would be held responsible for any mishap even it occurred in 200 years.

“Whenever any accident takes place it is the top brass at the regulator that is held accountable,” he said, adding that the chairman and other members of Ogra were not ready to take any chance.

The Economic Coordination Committee (ECC) of the cabinet headed by former finance minister Saleem H. Mandviwalla recently allowed special incentives to Byco for transporting crude from deep sea through SPM out of inland freight equalisation margin (IFEM) despite opposition by Ogra and refusal by the petroleum ministry in the past. As a result, Byco will get about Rs15 paisa per unit transportation charge on diesel production.

The petroleum ministry informed the ECC that Byco had sought a 20-year tax holiday, although it had been given such relief for seven and half years. It was of the opinion that “the same incentive (20-year tax holiday) enjoyed by Khalifa Coastal Refinery cannot be given to second-hand and relocated refineries as offered to brand new refineries because of cost difference”.

Byco Oil Pakistan recently completed the 120,000 barrels per day (BPD) project near its old 36,000 BPD refinery in Hub, Balochistan, and laid a 15km pipeline from its SPM in the deep sea to the town.

According to estimates given by Byco, the new refinery cost $700 million with 40 per cent foreign investment and that of SPM $90m.

Another Ogra official said the issue of including the impact of IFEM in the product price approved by the ECC for the Byco Refinery was very serious. He said a 15 paisa per litre impact of IFEM allowed to Parco Refinery for transporting crude from Karachi to Multan was justified and would continue subject to a policy directive by the petroleum ministry, but a similar treatment to Byco would become a serious controversy and could be challenged in court.

He said Parco was set up under a 1994 policy and an implementation agreement of 1995 with 60 per cent equity participation by the government of Pakistan. These were based on a feasibility study to make transportation of crude from Karachi to Multan and reverse transportation of refined products to Karachi and involved government guarantees to ensure uniform petroleum prices.

He said no such facility was available in the case of Byco which was a 100pc private entity and had been set up without any techno-economic feasibility and commitment from the government. On top of that, he added, Byco was based in Hub which was very close to Karachi and its products would get marketed in the city and its close proximity.

“There is no justification to extend same treatment to the two refineries in price calculation. One is located more than 870km from Karachi and the other close to Karachi,” he said.

The official said the petroleum ministry’s summary had even put on record that the previous ECC had made it clear that “the government would not pay any freight on inland transportation of crude and the refinery project would have its own arrangement of crude import handling/single point mooring, etc, to avoid freighting of crude”.

The ECC had in Aug 2011 approved crude transportation for Byco on proportionate crude volumes consumed for white projects for a period of one year up to June 2012 with a condition that Byco would transport its crude through SPM on its own.