By SKM
June 17, 2027
ISLAMABAD: Pakistan’s long-delayed $6 billion refinery upgradation programme has run into fresh turbulence after the Oil and Gas Regulatory Authority (OGRA) proposed reducing the deemed duty incentive on High-Speed Diesel (HSD) from 7.5 percent to 5 percent for refineries that failed to sign their Implementation Agreements (IAs) by the October 22, 2024 deadline, a move the industry says could undermine the financial viability of planned modernization projects.
The proposal has been incorporated into draft amendments to the Brownfield Refinery Policy 2023, which are currently being finalized before being submitted for formal approval. Under the proposed framework, the remaining 2.5 percent deemed duty, after deduction of applicable taxes, would be transferred to the Inland Freight Equalization Margin (IFEM) Pool, triggering strong opposition from refiners who view the measure as a retrospective penalty for delays they insist were beyond their control.
A senior Petroleum Division official told The News that the latest proposal has once again placed the country’s refinery upgrade programme in jeopardy despite recent efforts to resolve longstanding taxation issues that had stalled investment decisions. The programme is considered one of the largest planned investments in Pakistan’s downstream petroleum sector and is aimed at upgrading existing refineries to produce cleaner fuels while reducing furnace oil output.
Concerned by the industry’s reaction, the National Committee for Monitoring and Coordination (NCMC) met in Islamabad on Wednesday and assured refinery representatives that their concerns would be taken into account before the policy amendments are finalized. According to sources, the refineries were also asked to provide assurances that they would sign the pending Implementation Agreements after Parliament approves the Finance Bill 2026-27.
The latest dispute has emerged despite a major concession offered by the government in the upcoming federal budget. In the Finance Bill for FY2026-27, the government has proposed comprehensive exemptions from sales tax, customs duty and federal excise duty on the import of plant, machinery, equipment and spare parts required for refinery upgradation projects. The move addresses one of the refining sector’s key demands and was widely viewed as a breakthrough in efforts to revive the stalled investment programme.
However, while the proposed tax relief on import of equipment, spare parts, machinery required for upgrade project has been welcomed by refiners, the planned reduction in deemed duty protection has opened a new front of disagreement between the industry and regulators. Refinery executives argue that the reduction would substantially weaken the economic incentives that underpin the multi-billion-dollar investment plans envisioned under the Brownfield Refinery Policy.
The industry’s concerns were formally conveyed in a joint letter addressed to Federal Minister for Energy (Petroleum Division) Ali Pervaiz Malik by the chief executives of Attock Refinery Limited (ARL), National Refinery Limited (NRL) and Cnergyico Pakistan Limited. In the letter, the companies expressed serious reservations over the proposed amendment, arguing that it ignores the circumstances that delayed execution of the upgrade agreements and unfairly penalizes refineries that remain committed to investing more than $6 billion under the policy.
According to the refiners, the principal reason for the delay was the fiscal changes introduced through the Finance Act 2024, which resulted in the accumulation of unrecoverable input sales tax and significantly eroded the financial viability of the planned projects. The companies argued that these fiscal measures fundamentally altered the commercial assumptions on which their investment decisions had been based.
The refineries emphasized that they remained fully engaged with the Petroleum Division, OGRA and other stakeholders in seeking a workable solution to the sales tax issue and consistently reaffirmed their commitment to undertake the planned investments. They stressed that the delays did not result from any reluctance or unwillingness on their part to proceed with the modernization programme.
The companies further pointed out that most refineries had already demonstrated their commitment by initialing the Upgrade Agreements in March 2024, several months before the October deadline. They said the delays arose primarily from factors beyond their control, including the non-execution of the agreements by OGRA within the prescribed timeframe and the subsequent fiscal measures that materially altered the economics of the proposed investments.
In their communication, the refiners argued that it would neither be equitable nor consistent with the objectives of the Brownfield Refinery Policy to retrospectively reduce the deemed duty entitlement on the basis that the agreements were not executed by the deadline. They maintained that the policy itself became practically inoperative pending resolution of the sales tax and related fiscal issues introduced through the Finance Act 2024.
The industry also highlighted progress already achieved under the modernization effort, noting that one refinery has begun producing Euro-V compliant High-Speed Diesel, reflecting the sector’s commitment to improving fuel quality standards and implementing the policy’s objectives. The companies argued that such developments demonstrate that the refining sector remains committed to upgrading facilities despite the regulatory and fiscal challenges encountered over the past two years.
Warning of the broader implications of the proposed amendment, the refineries said any reduction in deemed duty protection could adversely affect investor confidence and jeopardize future investment decisions at a time when Pakistan is seeking to attract capital into strategic sectors. They have requested an urgent meeting with Energy Minister Ali Pervaiz Malik before any final decision is taken on the proposed changes.
The Brownfield Refinery Policy 2023 was designed to facilitate the modernization of existing refineries, improve fuel quality standards, reduce furnace oil production and attract billions of dollars in investment into Pakistan’s downstream petroleum industry. While the government’s proposed tax exemptions have resolved one of the sector’s biggest concerns, the emerging dispute over deemed duty protection has once again cast uncertainty over the future of the country’s flagship refinery upgrade programme. Ends
