ISLAMABAD: The government has revived efforts to implement Pakistan’s long-delayed petroleum refining policy after regional tensions and potential disruptions in the Strait of Hormuz exposed the country’s heavy dependence on imported petroleum products.
The renewed urgency follows the escalating US-Iran conflict, which has sharply increased Pakistan’s oil import bill and highlighted vulnerabilities in external fuel supply chains. Officials estimate the country is losing nearly $2 billion annually in foreign exchange due to the import of refined petroleum products instead of processing crude oil domestically.
During a recent meeting with refinery executives, Finance Minister Muhammad Aurangzeb assured the industry that the government would introduce corrective measures in the upcoming federal budget for FY2026-27 to remove hurdles delaying refinery upgradation and expansion projects worth around $6 billion.
The minister said the matter would also be taken up with the International Monetary Fund (IMF) during its upcoming review visit, with the aim of enabling policy adjustments needed to revive stalled investments.
A follow-up meeting chaired by the Petroleum Division on Monday directed refinery representatives to submit updated proposals without delay.
Petroleum Minister Ali Pervaiz Malik acknowledged that despite the approval of both greenfield and brownfield refining policies in 2023, implementation had remained stalled due to unresolved regulatory and taxation issues.
He emphasized that local refineries were “critical national assets” for ensuring uninterrupted fuel supply and strengthening Pakistan’s energy security.
“The ongoing regional situation arising from the US-Iran conflict has further highlighted the urgency of reducing reliance on external supply chains and ensuring maximum domestic refining capability,” the minister said.
Refineries, however, have linked fresh investment commitments to four major assurances from the government. These include a stability clause guaranteeing policy continuity during the three-to-five-year implementation period, permission to divert foreign exchange earnings from furnace oil exports toward refinery upgrades, clearly defined force majeure provisions, and compensation for sales tax-related losses through the Inland Freight Equalisation Margin (IFEM).
Sources said Attock Refinery had expressed readiness to immediately sign an agreement for refinery upgradation once the sales tax issue was resolved, even if adjustments were made through IFEM.
Industry officials identified the exemption of sales tax on petroleum products as the key obstacle affecting project viability. The petroleum minister directed stakeholders to submit a comprehensive proposal to the Economic Coordination Committee (ECC) and the federal cabinet before the finalisation of the budget so implementation of the refining policy could proceed without further delay.
Pakistan’s refining policy, initially finalised in August 2023 and approved in April 2024 after six years of consultations, effectively became inactive following the FY2024-25 budget. The setback occurred after the finance ministry and Federal Board of Revenue (FBR), under an agreement with the IMF, withdrew the existing 10 percent customs duty on the import of high-speed diesel (HSD).
The refining industry argues that the budget contradicted both the “Pakistan Oil Refining Policy for New/Greenfield Refineries 2023” and the “Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023.”
Under these policies, greenfield refineries were to receive a 7.5 percent customs duty protection on HSD imports for 25 years, while brownfield projects were promised a 10 percent duty protection for six years.
Petroleum Division officials maintained that refinery upgrades are also aligned with the IMF’s Resilience and Sustainability Facility (RSF) objectives, as modernisation would enable production of Euro-standard fuels with significantly lower sulphur and carbon emissions.
Officials further argued that outdated refining infrastructure continues to produce environmentally hazardous by-products, posing serious health and climate risks. They described the deadlock with the IMF, Ministry of Finance, and FBR as a “technical misunderstanding” that could be resolved through policy dialogue and coordination.
Story by Khaleeq Kiani
