Foreign investors hesitant to fund Pakistan’s refinery upgrades amid unresolved issues: report

Foreign investors are showing reluctance to invest in the upgradation of Pakistan’s refineries due to ongoing unresolved issues, including delays in the implementation of the Brownfield Refineries Policy 2023 and complications related to sales tax exemptions, according to a news report. 

Foreign investors have made it clear that they are unwilling to invest in refinery upgradation unless these issues are addressed by the government. 

One such example is Pakistan Refinery Limited (PRL), which had floated a tender to secure contractors and financing for its upgrade. However, Chinese investors withdrew from participating in the tender, citing the unresolved challenges faced by the sector. 

The deadline for the first round of bids passed without a single investor, prompting PRL to relaunch the tender process. The second round, with a submission deadline of May 30, is expected to yield little interest, industry officials have said.

Local refineries, considered strategic assets for Pakistan’s energy security, produce essential fuels like High-Speed Diesel (HSD). With local refineries already capable of producing diesel according to specifications from the Ministry of Energy, importing such products incurs a significant foreign exchange burden. The upgradation projects, if completed, would increase domestic diesel production, reducing reliance on imports.

The refineries’ capacity expansions and installation of advanced units, such as Isomerisation and Diesel HydroDesulfurization (DHDS), have enabled improvements in fuel quality. While one refinery produces Euro V-compliant diesel, most others supply diesel meeting Euro III standards. However, inconsistent demand for high-quality diesel from certain companies has hindered the full utilization of upgraded fuel.

Delays in policy implementation have already affected the timeline for these upgrades. Once fully upgraded, the refineries are expected to supply only Euro V fuels, aligning with international standards. 

However, many sectors in Pakistan, particularly transport and agriculture, do not require Euro V diesel, making locally produced grades still suitable for local market needs.

The continued influx of smuggled and substandard fuel also poses a significant threat to fuel quality, market stability, and the growth of local refineries. Resolving the sales tax exemption issue remains crucial to unlocking the full potential of these multibillion-dollar refinery upgrades, with the government yet to take decisive action.