ISLAMABAD: The federal government has decided to impose financial penalties on oil refineries that fail to sign Upgradation Agreements (UAs) with the Ministry of Energy’s Petroleum Division by October 1, 2026, according to well-informed sources.
The decision was taken by the Federal Cabinet while considering amendments to the Pakistan Oil Refining Policy for Upgradation of Existing Brownfield Refineries, 2023, following recommendations of the Cabinet Committee on Energy (CCoE).
The Petroleum Division told the Cabinet that the amended policy aims to ensure production of Euro-V compliant petrol and diesel, increase refining capacity and reduce furnace oil and other low-value products. The refinery upgrades are expected to generate annual foreign exchange savings of around $1 billion and attract substantial foreign investment, including potential investment from Saudi Arabia.
The Cabinet was informed that amendments recommended by the CCoE on July 28 had been incorporated into the final draft of the revised policy. The role of independent third-party consultants has also been strengthened to ensure independent certification and monitoring of upgrade projects.
Under the amended framework, refineries that default on their upgrade commitments or fall behind schedule would be barred from accessing incentives until corrective measures are taken.
The Cabinet approved several key changes, including requiring refineries to sign UAs with the Petroleum Division within 45 days instead of 60 days. Incremental incentives will be deposited into a Refinery Upgradation Account maintained by the Petroleum Division rather than escrow accounts with the Oil and Gas Regulatory Authority (Ogra).
Implementation and monitoring responsibilities will also shift from Ogra to the Petroleum Division.
Under the revised policy, a refinery completing its upgrade project within three years could receive an additional incentive equivalent to 0.5% of the capped incentive limit for every year saved.
The project completion period has been set at five years plus a one-year cure period, with a 1% reduction in incentives. The government may consider an additional one-year extension beyond the cure period, subject to justification.
Refineries failing to commission upgraded facilities within the maximum 5+1-year period could face cancellation of their licences by the competent authority.
A key provision states that refineries failing to execute UAs by October 1, 2026, would have to deposit the deemed duty above 5% on high-speed diesel (HSD) into the Refinery Upgradation Account, with the transfer to be completed by June 30, 2027.
For refineries signing the UA by October 1, the deemed duty on HSD would be reduced to 2.5%, before being phased out completely by November 15, 2026.
The Cabinet also decided that international arbitration would not be permitted without prior Cabinet approval, while missing definitions would be added to the policy to ensure clear and unambiguous interpretation.
Meanwhile, Petroleum Minister Ali Pervaiz Malik held meetings on August 26 with the managements of Pakistan’s five major refineries — PARCO, PRL, NRL, Cnergyico and Attock Refinery Limited (ARL) — to review progress on the Brownfield Refinery Upgradation Policy, financial and operational performance, and measures to strengthen national energy security.
According to the Petroleum Division, the managements of all five refineries reaffirmed their willingness to sign agreements under the revised policy, with the agreements expected to be executed early next month.
The agreements are expected to unlock around $6 billion in investment in Pakistan’s refining sector.
However, a senior refinery executive pointed out that the amendments to the 2023 refining policy had not yet been formally notified. The executive said that once the revised policy is notified, refineries would be required to sign agreements with the Petroleum Division within 45 days.
The pending notification could therefore have a direct bearing on the October 1 deadline and the financial consequences for refineries that fail to meet it.
Story by Mushtaq Ghumman
