KARACHI: The government is seeking to revive Pakistan’s stalled refinery upgrade programme by proposing amendments to the Brownfield Refining Policy 2023, extending the incentive period to seven years and introducing investor-protection measures to unlock nearly $6 billion in investment for the country’s five existing refineries.
The Petroleum Division submitted the proposed amendments to the Cabinet Committee on Energy (CCoE) in July 2026. Once approved, the revised framework will replace the existing Brownfield Refining Policy 2023 as the governing policy for refinery modernisation projects.
The Brownfield Refining Policy, notified on August 17, 2023, applies to Pakistan’s five operational refineries -- Pak-Arab Refinery Company (Parco), Attock Refinery Limited (ARL), National Refinery Limited (NRL), Pakistan Refinery Limited (PRL) and Cnergyico Pakistan Limited (CPL) -- with a combined refining capacity of around 20.5 million tonnes per annum (MTPA), equivalent to about 449,400 barrels per day. The policy does not cover the construction of new refineries.
The policy was designed to address structural inefficiencies in Pakistan’s refining sector, where installed capacity of 20.5 MTPA remains significantly underutilised, with annual throughput hovering around 10 MTPA. Industry experts attribute the gap to declining domestic demand for furnace oil, which has constrained refinery operations because most plants produce a fixed product mix with limited flexibility.
Pakistan’s refining industry comprises one mild-conversion refinery operated by Parco, while the remaining four facilities are ageing hydroskimming refineries that produce a relatively high proportion of furnace oil and lower-specification Euro-II and Euro-III fuels. As a result, the country continues to rely on imports of Euro-V petrol and diesel to meet domestic demand.
The Brownfield Refining Policy aims to modernise existing facilities through investments estimated at nearly $6 billion. The upgrades are expected to increase production of motor spirit (MS) and high-speed diesel (HSD), significantly reduce furnace oil output and enable refineries to produce Euro-V compliant fuels.
Under the proposed amendments, refineries entering into legally binding Upgrade Agreements will continue to receive 10 per cent tariff protection in the form of deemed duty on ex-refinery prices of MS and HSD for a period of seven years. Imports of machinery and equipment required for refinery upgrades have already been exempted from sales tax under the Finance Act for FY2026-27.
The policy includes a self-financing mechanism through jointly managed escrow accounts. A portion of the deemed duty -- equivalent to 10 per cent on motor spirit and 2.5 per cent on high-speed diesel -- will be deposited into these accounts and can only be withdrawn after financial close and achievement of specified project milestones, ensuring that the funds are used exclusively for refinery modernisation.
Refineries importing used plant, machinery and equipment will be allowed to withdraw up to 24.5 per cent of the total project cost from their escrow accounts, while projects using new machinery will be eligible to withdraw up to 27.5 per cent.
The policy also establishes a strict compliance framework. Participating refineries will be required to provide a bank guarantee of Rs1 billion, undergo third-party technical audits and comply with mandatory escrow deposit requirements. Delayed deposits will attract a surcharge equivalent to one-month Karachi Interbank Offered Rate (Kibor) plus three percentage points, while escrow accounts may be seized if payment defaults continue beyond 60 days.
Despite the policy’s ambitious objectives, implementation has remained slow. The original three-month deadline for signing Upgrade Agreements, which expired in November 2023, was extended twice. However, by mid-2024, Parco and Cnergyico -- together accounting for more than half of Pakistan’s refining capacity -- had yet to sign the agreements. In contrast, Attock Refinery and National Refinery had indicated readiness to proceed with their upgrade plans before tax-related issues, including sales tax treatment, delayed implementation.
