Govt moves to revive $6 billion refinery upgrade project with tax relief, stability guarantees

The federal government has moved to revive nearly $6 billion worth of refinery upgrade projects by considering sales tax exemptions on machinery imports and introducing policy stability guarantees for investors under the Brownfield Refinery Policy, The Express Tribune reported. 

The developments were discussed during a high-level meeting chaired by Finance Minister Muhammad Aurangzeb to address tax and policy issues delaying implementation of refinery modernisation projects.

The meeting was attended by Petroleum Minister Ali Pervaiz Malik, officials from Finance Division, Petroleum Division, Federal Board of Revenue, Oil and Gas Regulatory Authority (Ogra) and representatives of local refineries.

According to officials familiar with the discussions, the government is considering incorporating a “stability clause” into agreements between Ogra and refineries to ensure no major policy changes are introduced during implementation of upgrade projects.

Officials said another meeting chaired by the petroleum minister would be held on Monday to finalise proposals before sending a summary to the Economic Coordination Committee for approval.

Participants said the finance minister assured refinery representatives that the government was aware of the industry’s concerns and intended to resolve outstanding issues quickly.

The Brownfield Refinery Policy was introduced to encourage existing refineries to undertake major upgrades aimed at producing Euro-V compliant fuels, reducing furnace oil output and lowering dependence on imported petroleum products.

However, implementation of the policy slowed after changes introduced through the Finance Act 2024 shifted petroleum products from “zero-rated” to sales tax “exempt” status.

Refinery representatives informed the meeting that the revised 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 officials said the changes increased operational and project-related costs, affecting viability of long-term investments and financing arrangements.

According to sources, the government is examining various proposals to restore investor confidence, maintain project cash flows and preserve economic viability without affecting fiscal objectives.

Officials stated that the prime minister had directed relevant ministries to remove policy hurdles and facilitate refinery upgrade projects due to their importance for energy security and fuel supply management.