The Petroleum Division has sent draft Upgrade Agreements for existing and brownfield refineries to the Economic Coordination Committee for approval, paving the way for implementation of the amended refinery upgradation policy.
The agreements are expected to unlock around $6 billion in investment in Pakistan’s refining sector and support projects aimed at increasing production of Euro V petroleum products, reducing furnace oil output and improving refinery efficiency.
The Cabinet Committee on Energy approved amendments to the Pakistan Oil Refining Policy for Upgradation of Existing and Brownfield Refineries, 2023, on July 28, 2026. The federal cabinet ratified the changes on August 10.
Under the amended framework, Inter State Gas Systems has been designated as the implementation entity on behalf of the Petroleum Division. It will execute the Upgrade Agreements, operate Refinery Upgradation Accounts, monitor projects and administer incentive payments.
The government has also formed a committee comprising senior officials from the Petroleum Division, Law and Justice Division, OGRA and SIFC to finalize the agreements. Representatives from the Finance Division, NCMC, SIFC, ISGS and refineries also participated in consultations.
The draft agreement provides a common framework covering the rights and obligations of the government and refineries, project monitoring, verification of milestones and payment of incentives. The Law Division found the agreement aligned with the refining policy, while the Finance Division also submitted its comments.
The amended policy requires refineries to sign the agreements with the Petroleum Division within 45 days. Refineries that fail to execute the agreements by October 1, 2026, will face financial penalties under the revised framework.
The policy also shortens the project completion period to five years plus a one year cure period. Refineries completing projects within three years can receive an additional incentive of 0.5 percent of the capped limit for each year saved, while the incentive will be reduced by one percent if the project uses the full completion period.
Refineries that fail to commission their upgraded projects within the maximum five year plus one year period could also face cancellation of their licenses.
The government expects the refinery upgrades to increase domestic petrol and diesel production, reduce lower value products and generate annual foreign exchange savings of around $1 billion. The policy is also expected to attract foreign investment into the refining sector.
Under the amended mechanism, refineries signing the Upgrade Agreements by October 1 will have the deemed duty on high speed diesel reduced to 2.5 percent, with the rate falling to zero by November 15, 2026. Refineries failing to sign by October 1 will have to deposit the deemed duty above 5 percent on HSD into the Refinery Upgradation Account.
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