Revised Refining Policy Targets USD 6 Billion in Investment

The Petroleum Division has proposed amendments to the Brownfield Refining Policy 2023, aiming to attract nearly USD 6 billion in investment for refinery upgrades through a new package of incentives and investor protections.

 

The revised policy, submitted to the Cabinet Committee on Energy (CCoE), includes six new provisions, notably stability and parity clauses, designed to provide greater confidence to foreign investors and lenders financing refinery modernization projects. The proposal has also been circulated among key government institutions, including the SIFC, Finance Division, FBR, Board of Investment (BoI), OGRA, and the Law Ministry for review.

 

The Special Investment Facilitation Council (SIFC) has recommended that refineries willing to sign upgrade agreements should not be penalized for missing the October 22, 2024 deadline. It also proposed that the reduction in deemed duty on high speed diesel should take effect from the date an upgrade agreement is signed rather than being applied retrospectively.

 

Under the revised framework, existing refineries will receive a seven year package of fiscal incentives in return for investing in modernization projects that will enable the production of Euro-V compliant fuels, increase gasoline and diesel output, reduce furnace oil production, and strengthen Pakistan's energy security.

 

To qualify, refineries must sign legally binding Upgrade Agreements with OGRA within 90 days of the policy's notification. These agreements will outline investment plans, project milestones, refinery capacity, Euro-V production targets, financing arrangements, and implementation timelines.

 

The proposed stability regime aims to shield investors from adverse policy changes, including taxation, foreign exchange regulations, licensing requirements, and environmental rules. The agreements will also include provisions covering political force majeure, government related delays, and agreed exit mechanisms.

 

The policy allows participating refineries to open onshore foreign currency accounts to service foreign debt and maintain reserves equivalent to one year's debt repayments. It also requires upgraded refineries to maintain 14 days of crude oil inventory, with import dependent facilities holding an additional five days of crude at sea.

 

The revised policy outlines significant capacity enhancements across Pakistan's refining sector. PARCO, Attock Refinery, Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), and Cnergyico plan to increase production of cleaner fuels while sharply reducing furnace oil output. Cnergyico is expected to undertake the largest capacity expansion among domestic refiners.

 

To support these investments, the government has proposed maintaining a minimum 10% customs or regulatory duty on imported petrol and diesel for seven years, alongside 10% deemed duty or tariff protection on ex-refinery prices for eligible refineries.

 

The proposal also introduces a jointly managed escrow account mechanism, ensuring fiscal incentives are used exclusively for approved upgrade projects. Withdrawals will be linked to project milestones, while independent technical consultants and leading audit firms will monitor implementation and compliance.

 

Additional incentives include sales tax exemptions on imported machinery and equipment for refinery upgrades, continuation of certain reimbursement mechanisms through the Inland Freight Equalization Margin (IFEM), and temporary waivers allowing refineries to market non Euro-V fuels until modernization projects are completed.

 

The draft also introduces stricter enforcement measures, including financial penalties for delayed participation, regular technical audits, and suspension of incentives for projects that fail to meet agreed milestones or are abandoned.