ISLAMABAD: Prime Minister Shehbaz Sharif is expected to make a crucial decision on the future of Pakistan’s Brownfield Refinery Policy as the Cabinet Committee on Energy (CCoE) meets today to consider amendments that could determine the fate of billions of dollars in planned refinery upgrade investments.
According to official documents, the CCoE will review proposed amendments to the Pakistan Oil Refining Policy for Upgradation of Existing (Brownfield) Refineries, 2023, following consultations with key stakeholders, including the Oil and Gas Regulatory Authority (OGRA), the Ministry of Finance and the petroleum industry.
A major point of contention is the government’s proposal to retrospectively reduce the deemed duty protection available to refineries from 7.5% to 5%. Refiners argue that the move would unfairly penalize the industry for delays that were caused by the government’s own administrative processes rather than by the companies themselves.
Government sources maintain that the proposed reduction is based on the failure of refineries to sign Upgrade Agreements within the prescribed timeframe. However, refinery representatives strongly dispute this claim, stating that all companies accepted the draft agreements in 2024 and were only awaiting the government’s invitation for a formal signing ceremony at the Prime Minister’s Office.
“The delay was never on the part of the refineries,” a senior industry official said. “The industry completed all required formalities and repeatedly requested the Petroleum Division, OGRA and other relevant authorities to execute the agreements.”
Industry officials contend that they consistently raised the issue with the Petroleum Division, OGRA and other government stakeholders, emphasizing that administrative delays prevented the agreements from being finalized. They argue that reducing incentives retrospectively would be both unjustified and damaging to investor confidence.
At the center of the dispute is the deemed duty protection mechanism, a key incentive under the refinery upgrade policy aimed at encouraging billions of dollars in investments to produce Euro-V compliant fuels, reduce furnace oil production and improve Pakistan’s overall fuel mix.
Refinery representatives point out that the 7.5% tariff protection has remained in place for more than two decades, making the proposed reduction unprecedented. They maintain that altering the agreed incentive structure after prolonged government delays would undermine the policy’s credibility.
The issue has gained further significance following the Finance Act 2024, which shifted major petroleum products from the zero-rated sales tax regime to the exempt regime. This change deprived refineries of input tax adjustment, significantly increasing unrecoverable sales tax costs and adversely affecting the financial viability of planned modernization projects.
The Petroleum Division has acknowledged that these tax changes negatively impacted the economics of refinery upgrades and contributed to delays in implementing the Brownfield Refinery Policy.
Officials expect the prime minister to address the outstanding issues that have stalled implementation of the policy since its approval in August 2023. The refining industry hopes the government will retain the original incentive framework to ensure policy certainty and facilitate long-awaited investments.
To operationalize the policy, the Petroleum Division has proposed limited amendments while preserving its original objectives. It has also recommended establishing a committee comprising the Secretary Petroleum, Secretary Law, the Chairman of OGRA and a representative of the Special Investment Facilitation Council (SIFC) to finalize the Upgrade Agreement template.
Meanwhile, regulatory sources indicate that OGRA has expressed reservations about becoming a signatory to the Upgrade Agreements. OGRA Chairman Masroor Khan has reportedly maintained that the regulator’s role should remain limited to regulatory oversight rather than participation in commercial contracts.
The refining industry is now looking to the CCoE to remove the remaining policy bottlenecks without altering the agreed incentive framework, warning that policy consistency will be essential to unlocking refinery modernization projects, attracting investment and strengthening Pakistan’s long-term energy security.
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Story by Zafar Bhutta
