Key Takeaways
- Draft agreements for existing and brownfield refineries sent to Economic Coordination Committee.
- Expected to unlock $6 billion in investment and improve domestic fuel production.
- Amended policy aims to increase Euro V petroleum products and reduce furnace oil output.
The government has submitted draft Upgrade Agreements for existing and brownfield refineries to the Economic Coordination Committee (ECC) for approval, marking a significant step towards implementing the amended refinery upgradation policy.
The Cabinet Committee on Energy approved the policy amendments on July 28, 2026, and the federal cabinet ratified them on August 10, 2026, setting the stage for substantial changes in the refining sector.
Inter State Gas Systems (ISGS) has been designated as the implementation entity, tasked with executing the Upgrade Agreements, operating Refinery Upgradation Accounts, and monitoring projects.
A committee comprising senior officials from the Petroleum Division, Law and Justice Division, OGRA, and SIFC has been formed to finalize the agreements, with representatives from the Finance Division, NCMC, SIFC, ISGS, and refineries participating in consultations.
The draft agreement provides a common framework covering the rights and obligations of the government and refineries, project monitoring, verification of milestones, and payment of incentives.
The amended policy requires refineries to sign the agreements with the Petroleum Division within 45 days, with financial penalties for those who fail to do so by October 1, 2026.
The policy shortens the project completion period to five years, with a one-year cure period, and offers incentives for refineries that complete projects within three years, reducing the incentive by one percent if the project uses the full completion period.
Refineries that fail to commission their upgraded projects within the maximum five-year plus one-year period could face cancellation of their licenses.
The government anticipates that the refinery upgrades will increase domestic petrol and diesel production, reduce lower value products, and generate annual foreign exchange savings of around $1 billion.
Under the amended mechanism, refineries signing the Upgrade Agreements by October 1 will have the deemed duty on high-speed diesel reduced to 2.5 percent, with the rate falling to zero by November 15, 2026. Refineries failing to sign by October 1 will have to deposit the deemed duty above 5 percent on HSD into the Refinery Upgradation Account.
