ISLAMABAD: Pakistan’s five oil refineries have agreed to proceed with long-awaited upgrade projects worth \$6 billion, following the government’s resolution of their key financial concern—clearance of Rs34 billion in stuck-up funds through adjustments in petroleum pricing.
The breakthrough came after a meeting on Tuesday between refinery CEOs and Petroleum Minister Ali Pervaiz Malik, who was praised for his role in resolving the issue that had stalled refinery expansion plans for nearly a year. The CEOs assured the government they would move forward with their investments once the resolution is formalized in the federal budget.
Last week, the government approved a Rs1.87 per litre increase in the Inland Freight Equalisation Margin (IFEM) for petrol and diesel to facilitate the recovery of Rs34 billion in unrecoverable input sales tax. This issue arose due to a shift in the 2024-25 budget, which reclassified petroleum products as sales tax-exempt, nullifying the refineries’ ability to offset input costs under the previous zero-rated regime.
The change came just as the refineries were set to sign agreements under the revised brownfield refining policy, prompting them to pause their commitments due to unfavorable economic conditions.
The Petroleum Division justified the IFEM increase by arguing that the sales tax exemption had turned input tax into a direct cost for refineries and oil marketing companies (OMCs), requiring financial compensation to preserve industry viability.
