KARACHI: Local refineries have called for exemptions for brownfield projects similar to those granted to greenfield projects, including relief from all import-related taxes, GST and customs duty, without requiring certification from the Engineering Development Board (EDB).
They argued that equal treatment of brownfield and greenfield projects is essential to ensure investment parity and promote sector-wide upgrading.
In a joint proposal submitted to the government — after being asked to present a comprehensive plan to support implementation of the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023 — the five refineries suggested that a strong framework could be built by engaging independent technical and financial consultants to oversee and validate transactions.
The refineries also proposed that the practice of reimbursing disallowed input sales tax through the Inland Freight Equalisation Margin (IFEM) should be made permanent through a policy directive, calling the mechanism vital to sustain operational liquidity.
They warned that the application of the petroleum levy (PL) and climate support levy (CSL) on furnace oil has undermined refinery economics, as refineries are compelled to export furnace oil at a loss, making operations unsustainable. They urged the immediate withdrawal of PL and CSL on furnace oil produced domestically.
Other key demands included extending the retention period for incremental deemed duty incentives from seven to 10 years, and raising the cap on incremental deemed duty incentive retention to 27.5 per cent (net of tax) on eligible project expenditure.
Given the capital-intensive nature and long gestation periods of refinery upgrades, the refineries stressed that fiscal certainty is indispensable. They called for robust fiscal stability provisions to shield projects from future adverse changes in taxes, levies or pricing formulas, with compensatory relief in case of fiscal or regulatory disruptions — mechanisms they noted were standard in international energy regimes and crucial for investor confidence.
The refineries also described the current two-month deadline for signing Upgrade Agreements as “operationally restrictive” and recommended extending it to six months from notification, in order to unlock investment flows, sustain operations and ensure the policy’s success.
The Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries 2023, first notified in August 2023 and amended in February 2024, was initially received positively by the sector. However, a series of unforeseen fiscal and regulatory measures have since disrupted implementation and diluted the policy’s intended impact, the refineries said.
Among the major concerns was the Finance Act 2024, which exempted locally produced petroleum products from sales tax, thereby disallowing related input tax adjustments. The refineries noted that this raised both operating and project costs, as up to 80 per cent of input sales tax on goods and services could no longer be adjusted against output sales tax. While partial relief for operational inputs was provided via IFEM reimbursements in April 2025 for the 2024—25 fiscal year, no relief has been offered for subsequent years. Moreover, no IFEM reimbursements have yet been made for 2024-25.
In FY2025-26, the imposition of PL and CSL on furnace oil sales rendered local demand negligible by raising prices, eliminating a critical offtake outlet for refineries. As a result, most furnace oil must be exported at a financial loss, further threatening operational sustainability.
The refineries also noted that, although the policy clearly stipulates reimbursement of customs duty on crude oil imports through IFEM, this provision has not been implemented in letter and spirit, creating additional financial strain.
They concluded that these fiscal and regulatory developments have created uncertainty, raised costs and dampened investor confidence, while other persistent challenges continue to affect the sector’s sustainability and financial health. These concerns, they said, have repeatedly been communicated to authorities despite the industry’s demonstrated commitment to modernisation and alignment with national energy security goals.
