ISLAMABAD:
The government has finally come into action to secure an investment of $6 billion in the oil refining sector as it is expected to exempt machinery imports from sales tax to clear the way for refinery upgrades.
The implementation of a new oil refinery policy has been stalled for the past couple of years, creating an uncertain situation for the oil industry and even banks, which will finance plant upgrade projects running into billions of dollars.
“Now, the government may incorporate a ‘stability clause’ into the agreements to be signed between the Oil and Gas Regulatory Authority (Ogra) and refineries, ensuring there will be no policy shift while work continues on upgrading the plants,” a source said.
Pakistan’s long-stalled Brownfield Refinery Policy finally gained momentum after a high-level meeting, chaired by Finance Minister Muhammad Aurangzeb on Thursday, reaffirmed the commitment to removing the tax and policy bottlenecks facing the sector.
The meeting, attended by Petroleum Minister Ali Pervaiz Malik, senior officials of the Finance Division, Petroleum Division, Federal Board of Revenue, Ogra and representatives of refineries, focused on addressing the challenges emerging following changes via the Finance Act 2024.
Another meeting will be held on Monday, to be chaired by the petroleum minister, which will finalise proposals and send a summary to the Economic Coordination Committee (ECC) for approval.
According to Thursday meeting participants, the finance minister assured refineries that the government was aware of their concerns and the outstanding issues would be resolved swiftly.
Officials said the meeting reflected the government’s broader commitment to safeguarding nearly $6 billion in planned investments, considered critical for Pakistan’s long-term energy security.
Sources privy to discussions said the prime minister had already directed all relevant ministries to streamline the implementation of refinery upgrade projects and dismantle policy hurdles.
The Brownfield Refinery Policy has been introduced to encourage refineries to undertake major upgrades aimed at producing cleaner Euro-V compliant fuels, reducing furnace oil output and decreasing reliance on imported petroleum products.
However, subsequent fiscal changes, particularly the shift from “zero-rated” to sales tax “exempt” status for petroleum products, sparked concerns within the industry about input tax adjustments and project viability.
Refinery representatives told the meeting that tax treatment had disrupted financial models for ongoing and planned projects because input sales tax could no longer be fully adjusted against output liabilities. Industry estimates suggest that a substantial proportion of operational and project-related taxes will add to business costs.
Despite such concerns, the meeting was viewed positively by industry stakeholders, particularly after the finance minister and petroleum minister assured participants that the government would work closely with all stakeholders to come up with a sustainable and investor-friendly solution.
Officials familiar with the discussions said several proposals were under consideration, including mechanisms to restore investor confidence, ensure cash flow stability for refinery projects and preserve economic viability without compromising fiscal objectives.
The government reiterated that refinery modernisation was a strategic national priority due to its direct implications for fuel quality, import substitution, environmental compliance and energy security.
Industry executives welcomed the government’s proactive engagement and said policy continuity and fiscal predictability were essential for projects involving long gestation periods and multibillion-dollar investments.
Refineries have long argued that upgrade projects are highly capital-intensive and require stable tax and regulatory frameworks over extended periods to attract financing and maintain investor trust.
The meeting also deliberated on the need to introduce a broader stability framework to protect approved investments from abrupt fiscal policy changes. Stakeholders believe such assurances will significantly strengthen confidence among investors, lenders and international technology partners.
With the prime minister personally overseeing progress on refinery upgrades and the finance ministry now actively engaged in resolving the outstanding issues, industry participants expressed optimism that a workable solution could emerge in the coming weeks.
If implemented successfully, the Brownfield Refinery Policy is expected to transform Pakistan’s downstream petroleum sector by enabling cleaner fuel production, improving refining margins, reducing reliance on furnace oil and attracting investment into energy infrastructure.