Pakistan’s oil industry has rejected proposals to revise the existing fuel pricing formula through a guaranteed return model, warning that such a move would effectively force the government to subsidize fuel prices throughout the year, creating an unsustainable fiscal burden.
Industry officials said the renewed debate, driven by comments from former ministers and analysts, reflects an incomplete understanding of refinery economics and risks undermining the country’s fuel supply chain.
They stressed that the current pricing mechanism, linked to international benchmarks, is a globally practiced and time-tested framework that ensures alignment with world markets, while replacing it with a guaranteed return model would reintroduce an open-ended subsidy regime that even the International Monetary Fund has consistently discouraged.
Officials noted that listed refineries in Pakistan have collectively incurred losses exceeding Rs. 100 billion in recent years, with returns on investment remaining among the lowest despite the sector’s strategic importance.
They argued that refinery margins are cyclical and often structurally constrained, and should not be judged on the basis of a single month’s gains, as stronger margins typically arise only during extraordinary geopolitical events and do not reflect long-term economics.
They added that several major product streams, including furnace oil, gasoline, and bitumen, frequently trade below crude parity, which erodes margins even when products such as high speed diesel show temporary strength.
Assessing refinery economics solely on benchmark crude prices is also misleading, they said, as the landed cost includes freight, premiums, insurance, duties, and financing costs, all of which have surged amid the current environment, sharply increasing working capital requirements and compressing margins further.
Industry players maintained that if the concern is over so-called windfall gains, the primary beneficiaries are upstream exploration and production companies, many of which are government-owned and sell oil and gas at internationally benchmarked prices, directly boosting state revenues and tax collection for the Federal Board of Revenue. Refineries, by contrast, continue to operate on thin and often negative margins with limited upside capture.
They warned that selective policy intervention during periods of temporary margin improvement, while expecting market-based pricing during weak cycles, risks distorting incentives and damaging investor confidence in a capital-intensive sector.
