Key Takeaways
- Refineries failing to sign upgradation agreements by October 1, 2026, will face financial penalties.
- The policy aims to increase production of Euro V-compliant fuels and reduce reliance on furnace oil.
- Penalties include a deemed duty of 5 percent on high-speed diesel, to be deposited by June 30, 2027.
The Federal Cabinet has approved amendments to the Pakistan Oil Refining Policy for Upgradation of Existing Brownfield Refineries, 2023, which will impose financial penalties on oil refineries that fail to sign upgradation agreements by October 1, 2026.
The policy, which was ratified by the Cabinet Committee on Energy, is designed to push refineries toward upgrading their facilities, thereby increasing the production of petrol and diesel and ensuring compliance with Euro V standards.
Refineries that miss the deadline will be required to deposit a deemed duty of 5 percent on high-speed diesel into the Refinery Upgradation Account, with the transfer to be completed by June 30, 2027.
To encourage timely compliance, the Cabinet has created a declining deemed duty structure. Refineries signing their agreements by October 1 will face a reduced deemed duty of 2.5 percent, which will fall to zero by November 15, 2026.
The policy also tightens the timeline for signing agreements, reducing the period from 60 days to 45 days. The implementation and monitoring responsibilities have been shifted from the Oil and Gas Regulatory Authority to the Petroleum Division.
Independent third-party consultants will certify progress on refinery projects, and refineries that default on their projects or fall behind schedule will be prevented from receiving incentives until corrective measures are taken.
Projects completed within three years will qualify for an additional incentive equivalent to 0.5 percent of the capped limit for every year saved. The government has set the project completion period at five years, followed by a one-year cure period, with a one percent reduction in incentive.
The Petroleum Division has stated that the refinery upgrades could generate annual foreign exchange savings of about USD 1 billion and attract foreign investment into the sector. Saudi Arabia has already expressed interest in investing in Pakistan’s refining industry.
The government is now urging Pakistan’s five major refineries—Pak Arab Refinery Limited, Pakistan Refinery Limited, National Refinery Limited, Cnergyico, and Attock Refinery Limited—to move ahead with the agreements. A meeting was held on August 26 between the Petroleum and Natural Resources Minister, Ali Pervaiz Malik, and the managements of the five refineries to review progress under the brownfield upgradation policy, as well as their financial and operational performance.
