- September 7, 2026
- Posted by: Tresmark
- Category:
No Comments
The federal government has decided to impose financial penalties on oil refineries that fail to sign Upgradation Agreements (UAs) with the Ministry of Energy’s Petroleum Division by October 1, 2026, according to sources.
The decision was approved by the Federal Cabinet while reviewing amendments to the Pakistan Oil Refining Policy for Upgradation of Existing Brownfield Refineries, 2023, following recommendations of the Cabinet Committee on Energy (CCoE).
Under the amended policy, the government aims to enable domestic refineries to produce Euro-V compliant petrol and diesel, increase motor fuel production and reduce output of furnace oil and other low-value petroleum products.
The refinery modernisation programme is expected to generate annual foreign exchange savings of around $1 billion and attract significant foreign investment into Pakistan’s refining industry. Saudi Arabia has also shown interest in investing in the country’s refinery sector.
The Petroleum Division told the Cabinet that amendments recommended by the CCoE on July 28, 2026 had been incorporated into the final policy draft. The revised framework also expands the role of independent third-party consultants to provide certification and introduces safeguards against refineries receiving incentives if they default on or fall behind their approved upgrade plans.
The Cabinet approved the CCoE decision with several key conditions. Refineries will have to execute upgrade agreements directly with the Petroleum Division within 45 days, instead of the previously proposed 60-day period.
Incremental incentives will be placed in the Refinery Upgradation Account maintained by the Petroleum Division rather than escrow accounts managed by OGRA. Policy implementation and monitoring will also shift from OGRA to the Petroleum Division.
Under the revised incentive structure, a refinery completing its upgrade within three years could receive an additional incentive equivalent to 0.5% of the capped limit for each year saved.
The overall completion period has been set at five years plus a one-year cure period, with a 1% reduction in incentives. The federal government may grant an additional one-year extension beyond the cure period if justified.
Refineries that fail to commission upgraded projects within the maximum 5+1-year period could have their licences revoked by the competent authority.
The government has also introduced a specific penalty for refineries that do not sign UAs by October 1, 2026. Such refineries will be required to deposit the deemed duty exceeding 5% on high-speed diesel (HSD) into the Refinery Upgradation Account, with the transfer to be completed by June 30, 2027.
For refineries that sign the UA by October 1, the deemed duty on HSD will be reduced to 2.5%, before falling to zero from November 15, 2026.
The Cabinet further decided that international arbitration would not be permitted without prior Cabinet approval, while missing definitions would be incorporated into the policy to prevent ambiguity in its interpretation.
Meanwhile, Petroleum and Natural Resources Minister Ali Pervaiz Malik met the managements of Pakistan’s five major refineries on August 26, 2026, including PARCO, PRL, NRL, Cnergyico and Attock Refinery Limited, to assess progress under the Brownfield Refinery Upgradation Policy.
The discussions covered the refineries’ financial and operational performance, implementation of upgrade plans and measures aimed at strengthening Pakistan’s energy security.
According to the Petroleum Division, all five refineries reaffirmed their willingness to execute agreements under the policy, with signing expected early next month.
The agreements could pave the way for approximately $6 billion in investment in Pakistan’s refining sector.
However, a senior refinery executive said the amendments to the 2023 policy had not yet been formally notified. The executive added that once the revised policy is notified, refineries would have 45 days to sign agreements with the Petroleum Division.
