ISLAMABAD: The government has decided to shift responsibility for signing and monitoring brownfield refinery Upgrade Agreements (UAs) from Oil and Gas Regulatory Authority (Ogra) to Petroleum Division (PD).
Federal Minister for Petroleum Ali Pervaiz Malik has confirmed the agreements will now be signed with the ministry.
The minister said Petroleum Secretary, who is spearheading preparation of agreements, would be in office on Monday and that UAs would be signed once they are finalised.
He said the Director General (Oil) would oversee implementation of agreements on behalf of PD.
The minister disclosed a major change in proposed escrow arrangement, saying there would be no separate escrow account for utilisation of funds collected under incentive package.
Instead, utilisation of funds would be monitored by Directorate General Oil. A team of chartered accountants from a state-owned company would be nominated to oversee utilisation of funds and ensure proper implementation of agreed mechanism.
The development effectively changes implementation mechanism envisaged under recently amended brownfield refinery policy, which had assigned Ogra responsibility for signing and monitoring agreements.
The brownfield refinery policy was approved Prime Minister Shehbaz Sharif through Cabinet Committee on Energy (CCoE), with a 60-day deadline for signing required agreements with refineries.
Senior officials said Ogra’s earlier involvement had raised questions about regulator’s role in policy implementation, as policymaking and implementation are primarily responsibility of federal government, while Ogra’s core mandate is to regulate oil and gas sector.
Under the latest arrangement, Petroleum Division will be directly responsible for implementing refinery upgrade commitments.
However, the shift has also raised questions about whether recently approved amended policy would require another amendment to formally incorporate new arrangement, particularly because Ogra had specifically been assigned role of signing and monitoring agreements.
Officials also believe the matter needs to be resolved quickly as government is simultaneously working on a broader deregulation framework for petroleum sector.
Some officials fear parts of brownfield refinery policy could require further changes once deregulation is introduced. They have therefore called for deregulation framework to be finalised before long-term commitments are made with refineries.
Meanwhile, the country’s refineries have reportedly written to Petroleum Secretary, expressing their readiness to sign required agreements.
The refineries are particularly concerned about delays in implementing policy and 2.5 percentage-point reduction in deemed duty applicable to those refineries that failed to sign Upgrade Agreements by extended October 2024 deadline.
The brownfield refinery policy is aimed at encouraging existing refineries to undertake major upgrading projects to produce cleaner fuels and reduce Pakistan’s dependence on imported petroleum products.
Any further delay in signing the agreements could, therefore, affect investment decisions and implementation of planned refinery upgrade projects.
The development comes as government is also moving towards more frequent, effectively daily, pricing of petroleum products.
Officials say new pricing mechanism will allow international price movements to be reflected gradually rather than through larger periodic adjustments, helping to reduce impact of sudden price shocks on consumers.
Petroleum Minister Ali Pervaiz Malik has described daily pricing as a step towards eventual deregulation of petroleum sector, arguing greater competition would ultimately benefit consumers.
Pervaiz Malik is also heading a high-powered committee constituted by prime minister to prepare deregulation framework. Petroleum Division sources said the committee is expected to meet next week and could take key decisions regarding scope and timing of deregulation.
The proposed reforms, however, face resistance from some stakeholders, particularly state-owned oil companies and petroleum dealers, which have significant commercial interests in existing regulated market structure. The government now faces challenge of synchronising three major reforms: implementation of brownfield refinery policy, new petroleum pricing mechanism, and deregulation of downstream oil sector.
