Key Takeaways
- The Petroleum Division has proposed new investor protection measures for refinery upgrade projects.
- The policy includes a seven-year package of incentives and escrow mechanisms to ensure funds are used correctly.
- Refineries plan significant expansions, focusing on cleaner fuels and reducing furnace oil output.
The government has unveiled new policies aimed at fast-tracking $6 billion in refinery upgrades across Pakistan. The proposed amendments to the Brownfield Refining Policy 2023 have been submitted for approval by the Cabinet Committee on Energy (CCoE) after extensive consultations with various government bodies.
At the core of these proposals are six key provisions designed to protect investors against adverse changes in taxation, fiscal policies, and other government actions that could impact project economics. These measures include stability clauses and parity protections, ensuring international lenders and foreign investors have a stable environment for financing refinery upgrades.
Under the new framework, refineries choosing to upgrade or modernize their facilities will qualify for a seven-year package of incentives after signing legally binding Upgrade Agreements with OGRA within 90 days. These agreements cover political force majeure, government-related delays, and agreed exit mechanisms, providing additional reassurance to investors.
The revised policy aims to increase production of Euro V compliant gasoline and diesel while significantly reducing furnace oil output. This shift is expected to improve fuel quality and strengthen Pakistan’s energy security. Cnergyico, one of the major refineries, plans to undertake the largest capacity expansion, increasing both gasoline and diesel production substantially.
To support these investments, the government has proposed maintaining a minimum 10 percent customs or regulatory duty on imported gasoline and diesel for seven years. Eligible refineries will also receive a 10 percent deemed duty incentive on locally produced fuels, with part of this incentive deposited into jointly managed escrow accounts dedicated to financing refinery upgrades.
The policy includes exemptions from sales tax on imported plant, machinery, equipment, and materials for refinery projects. Additionally, it introduces a new escrow mechanism to ensure fiscal incentives are spent only on approved projects. Refineries can withdraw funds only after achieving financial close and meeting specific construction milestones, with interest earned on escrow balances also available for eligible project expenses.
The proposed policy also includes stricter enforcement measures. Refineries with outstanding government liabilities, including unpaid petroleum or climate support levies, will face penalties if they fail to meet their obligations under the new framework.
