ISLAMABAD: In a significant blow to Pakistan’s oil refining sector, the International Monetary Fund (IMF) has rejected key government proposals intended to unlock \$6 billion in refinery upgrade investments, stalling efforts to produce Euro-V standard fuels.
According to senior Petroleum Division officials, the IMF’s disapproval has derailed plans critical to Pakistan’s energy transformation. The proposals aimed to restore zero-rated status for petroleum products and introduce a 10% sales tax on imports of new machinery and spare parts necessary for upgrades. The IMF rejected both, citing implementation and verification concerns.
Federal Petroleum Minister Ali Parvaiz Malik, frustrated by the impasse, has escalated the issue to the prime minister, pushing for urgent intervention. He criticized the Finance Bill for FY26 for failing to address prior tax exemption issues introduced in FY25, which caused Rs34 billion in losses to refineries and oil marketing companies.
The IMF did, however, approve a 10% sales tax on motor spirit and high-speed diesel, expected to raise prices by Rs25 per litre, while urging the government to propose alternative frameworks for supporting the refinery upgrades.
Despite these setbacks, some refineries remain in talks with potential lenders, though investor confidence hinges on long-term tax policy stability. Refinery heads have requested a seven-year tax policy guarantee to proceed with the investment.
Officials emphasize that the upgradation is vital, as it would eliminate furnace oil production and enable full conversion of crude into high-quality, environment-friendly Euro-V fuels.
