ISLAMABAD: The long-awaited amendments to the Pakistan Oil Refining Policy 2023 are set to return to the Cabinet Committee on Energy (CCoE), with the Petroleum Division proposing a fresh implementation framework to revive multi-billion-dollar refinery upgrade projects that have remained largely stalled for almost three years.
According to official documents available with Business Recorder, the Petroleum Division has proposed constitution of a high-level committee, headed by the Secretary Petroleum and comprising the Secretary Law, Chairman OGRA and a representative of the Special Investment Facilitation Council (SIFC), to finalise the template of the Upgrade Agreement between OGRA and individual refineries for operationalization of the Brownfield Refining Policy.
The proposed amendments come after the Finance Act 2024 altered the sales tax regime for petroleum products, making refineries ineligible for input tax adjustments and significantly affecting the financial viability of upgrade projects.
The Petroleum Division has informed the CCoE that the issue has now been resolved with the support of the Finance Division, allowing the policy to move forward.
Industry sources told Business Recorder that refinery upgrades have investment horizons extending over two decades and financing institutions require certainty that agreed fiscal incentives will not be altered midway through project implementation.
The sources said recent changes to the policy framework have reinforced investor concerns, making a stability clause indispensable for attracting financing.
Another major concern relates to the government’s proposal to retrospectively reduce the 2.5 percent deemed duty on High-Speed Diesel (HSD) for refineries that did not execute Upgrade Agreements. Refineries argue that the deemed duty is part of the overall tariff protection available to the sector, which remained in place since 2002 and represents the only effective tariff protection available to domestic refineries across their product slate.
Industry representatives contend that applying the reduction retrospectively merely because refineries did not sign the Upgrade Agreement is unjustified, particularly when implementation of the policy itself remained pending at Government’s end which is the counter signatory with refineries as it remained uncertain due to unresolved taxation issues.
According to refinery officials, retrospective implementation would compel companies to restate their financial statements for the previous three years, potentially creating significant accounting losses and weakening already stressed balance sheets.
They maintain that most domestic refineries have reported substantial losses in recent years owing to weak international refining margins, exchange rate volatility and policy uncertainty. Additional retrospective financial adjustments, they argue, would further erode profitability and adversely affect their ability to secure financing for refinery modernization projects.
A senior executive of a refinery argue that the recent Iran-US conflict has once again demonstrated the strategic importance of domestic refining capacity, strengthening the case for preserving investor confidence instead of introducing retrospective fiscal measures.
The Petroleum Division has itself acknowledged in the summary that operationalization of the Refinery Upgrade Policy has acquired greater importance in the wake of the recent regional conflict.
Meanwhile, OGRA has reiterated its reservations over the proposed implementation framework, arguing that entering into contractual arrangements with refineries, managing escrow accounts and supervising project execution falls outside its statutory mandate under the OGRA Ordinance, 2002. It has proposed that these functions be assigned to a dedicated Project Management Unit or a government-owned Special Purpose Vehicle.
The Petroleum Division; however, has rejected the proposal, maintaining that OGRA itself had originally developed the implementation mechanism and had already signed an Upgrade Agreement with Pakistan Refinery Limited (PRL). It has warned that changing the implementation structure at this stage would further delay the refinery upgrade programme.
The 2023 Brownfield Refining Policy was approved by the CCoE to facilitate production of Euro-V compliant fuels, reduce furnace oil output and improve energy security.
However, despite subsequent amendments, only PRL has executed an Upgrade Agreement to date but no real progress on ground has been made because of inconsistency of policy.
PRL has so far signed two agreements and once the existing draft policy is approved, they will sign its third agreement. This inconsistency in policy is slowing the progress of their upgrade project.
Copyright Business Recorder, 2026