Prime Minister Shehbaz Sharif is expected to remove long-standing bottlenecks in the Brownfield Refinery Policy as the Cabinet Committee on Energy meets today to consider amendments that could shape the fate of billions of dollars in refinery upgrade investments.
According to official documents, the CCoE will review proposed 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, the finance division, and the petroleum industry.
However, the proposed changes have unsettled the refining sector, particularly a plan to retrospectively cut deemed duty protection from 7.5% to 5%, a move industry representatives say effectively penalizes refineries for delays they blame squarely on the government.
Sources said the reduction is being justified on the grounds that refineries failed to sign their Upgrade Agreements within the required timeframe. Refinery officials dispute this, saying all companies had already accepted the draft Upgrade Agreement back in 2024 and were simply waiting for the government to schedule 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.”
Industry officials say they raised this repeatedly with the Petroleum Division, OGRA, and other stakeholders, insisting that administrative delays on the government’s end, not the industry’s, held up execution. They argue it would be unfair to retrospectively cut incentives over delays the industry did not cause.
At the heart of the dispute is deemed duty protection, a central pillar of the refinery upgrade incentive package meant to support billions of dollars in investment toward Euro-V compliant fuel production, reduced furnace oil output, and an improved national fuel mix. Industry representatives note that the 7.5% tariff protection mechanism has remained unchanged for more than two decades, making the proposed cut to 5% both unprecedented and, in their view, unjust given that the delay was outside their control.
The dispute follows the Finance Act 2024, which shifted major petroleum products from the zero-rated to the exempt sales tax regime, stripping refineries of input tax adjustment and significantly raising unrecoverable sales tax costs. The Petroleum Division has itself acknowledged that these tax changes hurt the economics of refinery upgrades and delayed the policy’s implementation.
Officials say the prime minister is expected to resolve all outstanding issues that have stalled the Brownfield Refinery Policy since its approval in August 2023, with industry hoping the original incentive framework remains untouched. The Petroleum Division has proposed limited amendments aimed at operationalizing the policy while preserving its core objectives and has recommended forming a committee, comprising the Secretary of Petroleum, the Secretary of Law, the OGRA chairman, and a representative of the Special Investment Facilitation Council, to finalize the Upgrade Agreement template.
Regulatory sources, however, say OGRA has serious reservations about remaining a signatory to the Upgrade Agreements. OGRA Chairman Masroor Khan has repeatedly argued that the regulator’s role should be confined to regulation rather than becoming a party to commercial agreements.
The refining industry is hoping the CCoE will clear the remaining policy hurdles without retrospectively altering the agreed incentive framework, arguing that policy consistency is essential to unlocking long-delayed investment in refinery modernization and strengthening Pakistan’s energy security.
