Local refineries want joint escrow accounts to hold capital expenditures for financing upgrade projects to be opened as soon as possible.
The Oil and Gas Regulatory Authority (OGRA) and refineries will meet on Wednesday to go over the requirements for establishing joint escrow accounts under the recently implemented Brownfield Refinery Policy, according to a national daily.
To avoid potential losses that could occur if these accounts are not opened on time, the local refineries are eager to have the joint shared accounts opened as soon as possible.
According to the terms and conditions outlined in the Escrow Account Agreement between OGRA, the National Bank of Pakistan (NBP), and the refinery, these accounts would be managed.
In the context of this discussion, an escrow account is a place where money is held in trust while two or more parties complete a transaction. This means that after the beneficiaries have fulfilled their obligations under the agreement, the funds will be secured by a dependable third party and distributed to them.
The authorised refinery purchasing PME for the upgrade project is permitted by the new Brownfield Refinery Policy to withdraw up to 22% of the total project cost from the joint escrow account. In the meantime, approved refineries would be permitted to withdraw 25% of the total upgrade cost.
Pro-rata distribution of the funds from the joint escrow account would be used, with a maximum limited limit of 22 or 25 percent from the joint escrow account and the remaining funds coming from the refineries’ own resources, depending on the circumstances.
According to the final investment decision (FID), OGRA will permit a maximum withdrawal of the capped limit of the refinery upgrade project cost. The OGRA/government of Pakistan will not be required to make up the difference if the funds deposited in the joint Escrow Account are less than the respective capped limit of the expenditure made on a milestone/deliverable and/or overall upgrade project basis.
Additionally, OGRA will have the power to withdraw money whenever it pleases. The money in the escrow account won’t be used as a charge, lien, collateral, or any other type of borrowing instrument; instead, it will only be used for capital purchases.
Within 10 days of the start of the new month, refineries would deposit incremental incentives earned during the previous month. If payment is not made, interest will be assessed at a rate equal to one month’s KIBOR plus three percent, calculated for the actual number of days the applicable amount remains unpaid. The refinery won’t be able to withdraw any money from the joint account if the default lasts for more than 30 days.
The joint Escrow Account will be taken over and refineries will lose the ability to produce and distribute their products if the default continues for more than 60 days. It is understood that if refineries uphold their obligations to the government in exchange for full utilisation of the shared funds, all such cases will be dismissed.
