Govt Unveils New Plan to Fast Track $6 Billion Refinery Upgrade Projects

The Petroleum Division has proposed sweeping changes to Pakistan’s Brownfield Refining Policy 2023, introducing new investor protection measures and a fresh package of fiscal incentives aimed at unlocking nearly $6 billion in refinery upgrades and modernizing the country’s aging refining sector.

The proposed amendments have been submitted to the Cabinet Committee on Energy (CCoE) for approval after consultations with the Special Investment Facilitation Council (SIFC), the Finance Division, the Federal Board of Revenue (FBR), the Board of Investment (BoI), the Oil and Gas Regulatory Authority (OGRA), and other government bodies.

At the heart of the proposal are six new provisions, including stability and parity clauses designed to reassure international lenders and foreign investors financing refinery upgrade projects.

The draft seeks to protect investors against adverse changes in taxation, fiscal policies, environmental regulations, licensing requirements, foreign exchange rules, and other government actions that could affect project economics or delay implementation. Upgrade agreements would also include provisions covering political force majeure, government related delays, and agreed exit mechanisms.

The amendments were developed after refiners argued that changes introduced through the Finance Act 2024 had undermined the commercial viability of planned investments. Under the proposed framework, refineries choosing to upgrade, modernize, or expand their facilities will qualify for a new seven year package of incentives after signing legally binding Upgrade Agreements with OGRA within 90 days of the amended policy being notified.

The revised policy aims to increase production of Euro V compliant gasoline and diesel, significantly reduce furnace oil output, improve fuel quality, and strengthen Pakistan’s energy security.

It also proposes allowing refineries to maintain foreign currency accounts to service overseas debt and requires upgraded refineries to maintain higher crude oil inventories to improve supply security.

The proposal outlines major expansion plans across Pakistan’s five refineries. Pakistan Arab Refinery Limited (PARCO), Attock Refinery Limited (ARL), Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), and Cnergyico all plan to increase production of cleaner fuels, while sharply reducing furnace oil output. Cnergyico is expected to undertake the largest capacity expansion, significantly increasing both gasoline and diesel production.

To support these investments, the government has proposed maintaining a minimum 10 percent customs or regulatory duty on imported gasoline and diesel for seven years. Eligible refineries would also receive a 10 percent deemed duty incentive on locally produced gasoline and diesel, although part of the incentive would be deposited into jointly managed escrow accounts dedicated exclusively to financing refinery upgrades. The policy also exempts imported plant, machinery, equipment, and materials for refinery projects from sales tax.

The draft introduces a new escrow mechanism to ensure fiscal incentives are spent only on approved projects. Refineries would be allowed to withdraw funds only after achieving financial close and meeting specific construction milestones, while interest earned on escrow balances could also be used for eligible project expenses. The funds cannot be pledged as collateral for borrowing.

The proposed policy also includes stricter enforcement measures. Refineries with outstanding government liabilities, including unpaid petroleum levy or climate support levy obligations, would not qualify for incentives until reaching legally enforceable settlement agreements.

Independent technical consultants and leading audit firms would monitor project progress, while refineries failing to meet agreed milestones could face suspension of escrow withdrawals, encashment of bank guarantees, or loss of incentives.

Separately, the SIFC has recommended that refineries that had demonstrated their willingness to sign Upgrade Agreements should not be penalized for missing the October 22, 2024 deadline. It proposed that the reduction in deemed duty on high speed diesel for such refineries should take effect from the actual signing date of the agreement rather than retrospectively. The issue will now be decided by the Cabinet Committee on Energy.