The Petroleum Division has proposed extending the deadline by six months for signing the Pakistan Oil Refining Policy, aimed at upgrading five local refineries.
This extension is suggested as some refineries are not prepared to commit to the policy.
Despite Prime Minister Shehbaz Sharif’s earlier instructions to the Petroleum Division to organize a signing ceremony, a date still needs to be finalised.
The Cabinet Committee on Energy (CCoE) reviewed and approved amendments to the policy on February 6, 2024, which were ratified by the Federal Cabinet on February 15, 2024.
Subsequently, the “Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023” was officially implemented by OGRA and the refineries.
The policy introduces incentives to produce Euro-V standard fuels and reduce furnace oil production. Refineries can receive an additional 2.5% incentive on High-Speed Diesel (on top of the existing 7.5%) and 10% on Motor Spirit, allocated from deemed duty for seven years. These incentives will be held in an escrow account managed by OGRA, which will release funds upon completion of specific project milestones.
Refineries must sign Upgrade Agreements, open an escrow account with OGRA, and provide a Rs 1 billion bank guarantee within 60 days of the policy notification, which was due by April 22, 2024.
If refineries fail to sign the agreement by this deadline, the deemed duty on High-Speed Diesel will be reduced from 7.5% to 5%, posing significant operational challenges.
Currently, Attock Refinery Ltd, National Refinery Ltd, and Pakistan Refinery Ltd have agreed to sign the agreements.
However, PARCO and Cnergyico Pakistan Limited, which together account for over half of the country’s refining output, have yet to finalize their agreements. PARCO is updating its feasibility study, and Cnergyico is negotiating a settlement with the government over outstanding petroleum levies.
Due to these delays, the Ministry of Energy has recommended extending the signing deadline and other associated deadlines by six months from April 22, 2024.
It’s worth noting that the refining policy has been in development for over four years, during which delays have reportedly resulted in approximately $4 billion in losses. ARL, NRL, and PRL are planning to invest $3 billion in their upgrade projects, with total investments potentially reaching $6 billion if PARCO and Cnergyico participate.
