PM to decide fate of refinery upgrade policy

Prime Minister Shehbaz Sharif is expected to address key issues facing Pakistan’s refinery sector today.

Prime Minister Shehbaz Sharif is expected to address key issues facing Pakistan’s refinery sector today.

The Cabinet Committee on Energy (CCoE) will review proposed changes to the Brownfield Refinery Policy.The policy was approved in 2023. It aims to encourage investment in the modernisation of existing refineries.

The proposed changes could affect billions of dollars in planned refinery investments.The main dispute is over deemed duty protection. The government has proposed reducing it from 7.5 per cent to 5 per cent.

Refinery companies have opposed the proposed cut. They say it could weaken the financial benefits offered under the policy.The industry also disputes the government’s position on delays in signing Upgrade Agreements.

Officials say refineries failed to sign the agreements within the required period.Refinery representatives reject the claim. They say they had already accepted the draft agreements in 2024.

According to industry officials, the companies were waiting for the government to arrange the formal signing process.They say the industry repeatedly contacted the Petroleum Division and other authorities to complete the process.

The companies argue that the delay was caused by administrative issues on the government side.They therefore believe the incentives should not be reduced because of delays beyond their control.

Deemed duty protection is a key part of the refinery upgrade package.The incentive is designed to encourage companies to invest in modernisation.

The planned upgrades are aimed at increasing production of Euro-V compliant fuels.They are also expected to reduce furnace oil production.

The projects could help improve Pakistan’s overall fuel mix.The refining sector has also faced additional financial pressure from changes in the tax system.

The Finance Act 2024 moved several petroleum products from the zero-rated sales tax regime to the exempt category.The change affected the ability of refineries to adjust input sales tax.

It also increased their unrecoverable tax costs.The Petroleum Division has acknowledged that the tax changes affected the financial viability of refinery upgrade projects.

Officials said the prime minister is expected to review the major issues that have delayed the implementation of the policy since August 2023.The Petroleum Division has proposed limited amendments to make the policy operational.

It has also recommended a committee to finalise the Upgrade Agreement.The committee would include senior officials from the Petroleum Division, Law Division and OGRA.

A representative of the Special Investment Facilitation Council would also be included.OGRA, however, has reservations about signing the agreements.

OGRA Chairman Masroor Khan has argued that the regulator should focus on its regulatory role.He believes OGRA should not become a party to commercial agreements.

The refinery industry is now hoping for a decision that removes the remaining hurdles.Companies want the government to maintain the existing incentive structure.

They say policy consistency is important for attracting investment.They also warn that changes to agreed incentives could discourage investors.

A clear decision by the CCoE could help restart delayed refinery upgrade projects.The decision could also influence Pakistan’s fuel supply and long-term energy security.