The Special Investment Facilitation Council (SIFC) discussed the way forward for $6 billion refinery upgrade projects after the International Monetary Fund (IMF) rejected government proposals, according to a news report.
In the SIFC meeting, it was decided that authorities would continue engaging with IMF officials ahead of the fiscal year 2026 budget approval by parliament. The government aims to persuade the IMF of the importance of refinery upgrades for the country.
If the IMF remains unconvinced, the government plans to revise its brownfield refinery policy to offer more incentives to ensure that critical upgrade projects can proceed on schedule, a senior official was quoted in the report who attended the meeting.
Earlier, the IMF had declined the government’s request for the restoration of zero-rated status for refineries and the imposition of a 10% sales tax on petroleum, oil, and lubricants (POL) products. The IMF called on the government to come up with new proposals on the matter.
To provide temporary relief to refineries, the government raised the Inland Freight Equalization Margin (IFEM) by Rs1.87 per liter to address the Rs34 billion loss incurred by refineries in the current fiscal year due to the sales tax exemption on POL products. This measure, introduced in the Finance Bill for FY25, is expected to cover the loss until June 2026.
However, sources indicated that the IMF is not fully supportive of the IFEM hike and may not allow the government to continue this relief after June 2026.
Refineries have expressed concerns that their lenders will not extend financing until the government resolves the sales tax exemption issue for the next 6-7 years—the time frame needed for refinery upgrades.
Once upgraded, refineries will produce environment-friendly petrol, diesel, and other POL products that meet Euro-V specifications, while minimizing furnace oil production.
