Pakistan’s five major refineries are now ready to proceed with $6 billion worth of upgrade projects after the government addressed their key demand to clear Rs34 billion in outstanding payments through petroleum pricing adjustments.
According to news reports, the federal government has committed to resolving the ongoing sales tax exemption issue for the country’s oil refineries in the upcoming federal budget, a crucial step expected to unlock long-delayed refinery infrastructure upgrades and align the sector with global standards.
In a recent meeting, top executives from leading refineries, including Pakistan Refinery Limited, Attock Refinery, National Refinery, PARCO, and Cynergico, expressed appreciation for the government’s temporary resolution of the sales tax matter for FY25 but pressed for a permanent policy solution to enable investments in Euro-V compliant refinery upgrades.
The government approved an increase of Rs1.87 per litre in the transportation margin of petrol and diesel prices last week to settle Rs34 billion pending since July 2024. This adjustment was necessary because refineries now pay standard sales tax on their input costs without recovering these through product pricing, following the reclassification of petroleum products from zero-rated to exempt under the Finance Act 2024-25. This change significantly raised operational and capital costs, threatening refinery modernization plans.
The petroleum minister has taken the issue directly to Prime Minister Shehbaz Sharif and the Ministry of Finance, assuring the industry that a permanent solution will be incorporated in the forthcoming federal budget.
Refinery leaders warned that without a clear and consistent tax policy, the $6 billion investment required to meet Euro-V standards will remain stalled, calling for stability in tax policy for at least seven years to support long-term sector growth.
Despite the challenges, the minister’s interim solution through the Inland Freight Equalisation Margin (IFEM) increase was welcomed as a positive first step. The Oil Companies Advisory Council (OCAC) and refinery CEOs praised the swift government response and expressed confidence that the permanent resolution will facilitate critical upgrades.
The government’s decision to clear the Rs34 billion dues has removed a major hurdle that stalled refinery investment agreements under the improved refining policy, which had taken over two years of negotiations. The move is expected to help modernise Pakistan’s refining capacity, improve fuel quality, reduce import dependence, and support the country’s transition to cleaner energy.
