PM Approves Amendment in Refinery Upgrade Policy 

Aftab Ahmed

 Prime Minister Shahbaz Sharif has approved Brownfield Refining Policy. Refineries have to sign upgrade agreements in 90 days. GST waiver on equipment imports related to upgrade project is granted which was a major hurdle in execution of the policy.

The Cabinet Committee on Energy (CCoE) met on Tuesday to consider amendments aimed at removing long-standing bottlenecks in the Brownfield Refinery Policy to determine the fate of billions of dollars in refinery upgrade investments.

Adil Khattak CEO, Attock Refinery Ltd the Policy originally notified on August 17, 2023 later amended in February, 2024 and again today after taking into consideration genuine concerns of the refineries on some of the issues which would have made the proposed upgradation projects unviable.

The amendments were made after intense and prolonged consultation between the government, refineries, independent financial and legal advisory firms.

 The Policy will enable the Oil Refineries to undertake major upgradation projects to not only comply with Euro – V specifications but also increase production of deficit products of petrol and diesel and also reduce production of furnace oil which because of drastically reduced demand in recent years often results in storage constraints forcing the refineries to reduce capacity utilisation. 

The refineries upgradation will bring in investment of US $ 5 – 6 Billion and not only result in cleaner environment friendly fuels but also major savings of precious foreign exchange.

The Refineries Upgradation Policy would surely be termed as the most important achievement of the government and it is hoped that it would be implemented in it’s true letter and spirit.

The Policy, which took more than six years in the making mainly due to changes in the governments, bureaucracy and fiscal policies is now expected to finally take off, inshaAllah. Though the amended Policy unfairly penalises some of the refineries for the delay, it is still an occasion to celebrate in the larger interests of the country as every year of delay in upgradation of the local refineries was causing 1.5 to 2 billion dollars loss per annum to the country.

The Petroleum Minister Mr. Ali Pervaiz Malik and his team in the Petroleum Division specially deserve accolades for finally getting the Policy through in consultation with the industry and relevant government departments.

The CCoE considered amendments to the Pakistan Oil Refining Policy for Upgradation of Existing (Brownfield) Refineries, 2023, following consultations with stakeholders, including the Oil and Gas Regulatory Authority (OGRA), the Finance Division and the petroleum industry.

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However, the proposed amendments had sparked concern within the refining sector over a plan to retrospectively reduce deemed duty protection from 7.5% to 5%, effectively penalising refineries for delays that, according to industry representatives, were caused by the government itself.

Sources said the proposed reduction is based on the government’s position that refineries failed to sign Upgrade Agreements within the stipulated timeframe. Refinery officials, however, reject that claim, arguing that all companies had accepted the draft Upgrade Agreement in 2024 and were merely awaiting the government’s call for a formal signing ceremony at the Prime Minister’s House.

“The agreements were never delayed because of the refineries,” a senior industry official said. “The industry completed its part of the process and repeatedly requested the Petroleum Division, OGRA and other government forums to execute the agreements.”

According to industry officials, refineries consistently pleaded their case before the Petroleum Division, OGRA and other stakeholders, maintaining that administrative delays on the government’s side prevented execution of the agreements. They argue it would therefore be unjustified to retrospectively reduce incentives on the basis of delays for which the industry was not responsible.

The dispute centres on deemed duty protection, a key component of the refinery upgrade incentive package designed to support billions of dollars in investment for producing Euro-V compliant fuels, reducing furnace oil output and improving the country’s fuel mix.

Industry representatives argue that a 7.5% tariff protection mechanism has remained in place for more than two decades, making the proposed reduction in deemed duty to 5% both unprecedented and unfair, particularly when the delay in implementing the policy was beyond the refineries’ control.

The controversy comes after the Finance Act 2024 shifted major petroleum products from the zero-rated to the exempt sales tax regime, depriving refineries of input tax adjustment and substantially increasing unrecoverable sales tax costs. The Petroleum Division itself has acknowledged that the tax changes adversely affected the economics of refinery upgrades and delayed implementation of the policy.

Officials said the prime minister is expected to address all outstanding issues that have delayed implementation of the Brownfield Refinery Policy since its approval in August 2023, with the industry hoping the original incentive framework will remain intact to restore investor confidence.

The Petroleum Division has proposed limited amendments to operationalise the policy while preserving its original objectives. It has also recommended constituting a committee comprising the Secretary Petroleum, Secretary Law, the OGRA chairman and a representative of the Special Investment Facilitation Council (SIFC) to finalise the template of the Upgrade Agreement for execution between OGRA and the respective refineries.

However, regulatory sources told that OGRA has serious reservations about remaining a signatory to the Upgrade Agreements. They said OGRA Chairman Masroor Khan, who is also serving as Secretary Establishment, has repeatedly raised the issue during inter-ministerial meetings, arguing that the regulator’s role should be confined to regulation rather than becoming a contractual party to commercial agreements. The matter is also expected to come under discussion during the CCoE meeting.

The refining industry is hoping the CCoE will remove the remaining policy hurdles without retrospectively altering the agreed incentive framework, arguing that policy consistency is critical to unlocking long-awaited investments in refinery modernisation, improving fuel quality and strengthening Pakistan’s energy security.