Refineries Seek Termination, Force Majeure Clauses in Upgrade Agreement

Local refineries want the option to terminate the contract and force majeure in their upgrade deal with the Oil and Gas Regulatory Authority (OGRA) as per the notified Brownfield Refinery Policy. Refineries want termination and force majeure clauses included in the implementation agreements, arguing that if the government fails to meet its obligations for an extended period of time, every refinery should be given the right to terminate the deal, and if a calamity such as the COVID-19 hits the country and the refinery is unable to meet the upgradation deadline, the refinery should be allowed to seek force majeure. OGRA says such conditions are not a part of the upgrade policy. Under the notified brownfield refinery policy, the local refineries are due to sign implementation agreements with OGRA by November 15, 2023, and after that, each refinery will have to ensure financial close in two years’ time to be able to use the 25 percent amount from the Escrow account for upgradation. Currently, the government and refinery representatives are negotiating contracts that include a legally binding upgrade agreement with OGRA in six years, the opening of an Escrow account between the refinery, the National Bank of Pakistan (NBP), and OGRA, and a deposit of Rs. 1 billion as a guarantee by the refinery. The brownfield refinery strategy provides for a 6-year period of 10 percent tariff protection/deemed duty on petrol and diesel rates. The policy will mandate refineries to deposit 2.5 percent of the presumed duty on diesel and 10 percent on petrol in the Escrow Account jointly maintained by OGRA and the respective refineries at NBP.