A $6bn investment aimed at upgrading Pakistan’s local refineries under the Brownfield Refineries Upgradation Policy faces a severe setback, as the 60-day extension period for refineries to sign implementation agreements (IAs) expires today. Despite months of negotiations, no refineries have signed the agreements due to unresolved issues related to sales tax exemptions on diesel, petrol, kerosene oil, and light diesel oil imposed in the FY25 Finance Bill.
A critical meeting of the Special Investment Facilitation Council (SIFC) is set to take place today, where top officials from the Petroleum Division and managing directors of local refineries will discuss the path forward. The outcome of this meeting is seen as pivotal in determining whether the refineries can move ahead with the upgrades, as the current impasse threatens to derail the project entirely.
The Oil Companies Advisory Council (OCAC), led by its chairman Adil Khattak, has repeatedly warned the government about the dire consequences of continued delays. In letters to the DG of SIFC, Khattak stressed that the downstream oil sector, including refineries and oil marketing companies, faces an existential crisis due to policy inaction. The lack of sales tax exemptions has rendered refinery operations unsustainable and jeopardized the upgrades.
The OCAC also highlighted the severe impact of fuel smuggling from Iran, which accounts for 20-25pc of local consumption. This illegal trade has slashed refinery sales, forced periodic shutdowns, and caused a loss of $1bn per year to the government. The unabated smuggling also raises serious environmental concerns due to the poor quality of smuggled petroleum products.
The government’s inaction has resulted in a substantial loss of $1bn each year since the Refineries Policy was delayed for over four years. Despite refineries being ready to sign the agreements, the amendment to the Sales Tax Act, which disallows claims on 80-85pc of input tax, has made both current operations and future upgrades unviable.
In a last-ditch effort, the refineries and OCAC have appealed to the SIFC for immediate intervention. If a resolution is not reached, the consequences could collapse the oil supply chain and prevent Pakistan from securing the $6bn investment needed for refinery upgrades, posing a serious threat to national energy security.
