Islamabad — The government is preparing to exempt machinery imports for refinery upgrades from sales tax in a major move aimed at unlocking nearly $6 billion in investment in Pakistan’s oil refining sector.
The decision is expected to revive the long-delayed Brownfield Refinery Policy, which has remained stalled for the past two years due to tax and regulatory uncertainties affecting refineries and financing institutions.
Sources said the government is also considering the inclusion of a “stability clause” in agreements between the Oil and Gas Regulatory Authority (Ogra) and refineries to ensure policy continuity during the execution of upgrade projects.
The development gained momentum after a high-level meeting chaired by Finance Minister Muhammad Aurangzeb on Thursday reaffirmed the government’s commitment to resolving tax and policy bottlenecks facing the sector.
The meeting was attended by Petroleum Minister Ali Pervaiz Malik, senior officials from the Finance Division, Petroleum Division, Federal Board of Revenue (FBR), Ogra, and representatives of local refineries.
Participants discussed challenges that emerged after changes introduced through the Finance Act 2024, particularly the shift in petroleum products from “zero-rated” to sales tax “exempt” status, which created complications in input tax adjustments and affected the financial viability of refinery upgrade projects.
Another key meeting, scheduled for Monday under the chairmanship of the petroleum minister, is expected to finalise proposals before sending recommendations to the Economic Coordination Committee (ECC) for approval.
According to officials, the finance minister assured refinery representatives that the government fully understood industry concerns and would work to resolve all outstanding issues on a priority basis.
Industry stakeholders believe the government’s renewed engagement reflects its determination to protect approximately $6 billion in planned investments, considered essential for Pakistan’s long-term energy security and fuel sustainability.
Sources familiar with the discussions said Prime Minister Shehbaz Sharif has already directed relevant ministries to expedite refinery upgrade projects and remove policy hurdles delaying implementation.
The Brownfield Refinery Policy aims to modernise existing refineries to produce cleaner Euro-V compliant fuels, reduce furnace oil production, and cut dependence on imported petroleum products.
Refinery operators told officials that the revised tax treatment had disrupted financial models because input sales tax could no longer be fully adjusted against output liabilities, significantly increasing project and operational costs.
Despite these concerns, refinery representatives expressed optimism after receiving assurances from the finance and petroleum ministries that investor-friendly solutions would be developed in consultation with all stakeholders.
Officials said several proposals are currently under review, including measures to restore investor confidence, improve cash flow stability, and maintain project viability without undermining fiscal objectives.
The government reiterated that refinery modernisation remains a strategic national priority due to its direct impact on fuel quality, environmental compliance, import substitution, and overall energy security.
Industry executives welcomed the government’s proactive approach, emphasising that long-term policy stability and fiscal predictability are essential for attracting financing and maintaining investor confidence in capital-intensive energy infrastructure projects.
If successfully implemented, the Brownfield Refinery Policy is expected to significantly transform Pakistan’s downstream petroleum sector by enabling cleaner fuel production, improving refining efficiency, reducing furnace oil reliance, and attracting substantial foreign and domestic investment.
Story by ZAFAR BHUTTA
