ISLAMABAD: The government’s latest intervention in petrol pricing has raised concerns in Pakistan’s refining industry, with stakeholders warning that it could push domestic refineries towards negative gross refining margins (GRMs).
They say it undermines their financial viability and jeopardise the country’s $6 billion refinery upgradation programme.
Usama Qureshi, vice chairperson of Cnergyico PK Limited, told The News that abrupt changes to the petrol pricing formula were creating uncertainty for investors and damaging the refining sector.
“How can you operate a capital-intensive industry when the goalposts change every other day? How can the government expect refineries to sell products below cost? Who will invest billions of dollars in a sector where there is no policy certainty?” he said.
Qureshi said refineries are already unable to recover actual diesel crack spreads because of government intervention, while the latest petrol pricing decision would further squeeze their margins.
He said the industry is importing higher-priced US crude, which yielded more petrol than the Middle Eastern grades previously processed by local refineries. The revised pricing formula could push their overall refining margins into negative territory, effectively penalising them for importing US crude, he added.
The refining sector has already absorbed a financial burden exceeding Rs80 billion through the compression of diesel crack spreads. Industry representatives fear the latest intervention could impose further losses, making it harder for refineries to sustain operations and finance planned investments.
At the centre of the controversy is the government’s decision to restrict the calculation of ex-refinery petrol prices to pre-war levels, while passing on the benefit to consumers through a reduction in the petroleum levy. Qureshi estimated that the arrangement could impose an additional burden of around Rs49 per litre on locally refined petrol.
The Cabinet approved the revised pricing mechanism on October 30 for an initial period of 30 days.
Under the arrangement, petrol’s import price will be determined using the actual import cost of the relevant Pakistan State Oil (PSO) cargo. If the actual cost is unavailable for daily pricing, the premium, incidentals and customs duty applicable to the last available cargo will be used.
However, refineries will calculate their ex-refinery petrol prices using the premium, incidentals and customs duty levels prevailing on March 7, 2026, before the war-related disruption. The difference between the import price and the regulated ex-refinery price will be surrendered by refineries under the petroleum levy head of account C03901.
The government has directed that the resulting benefit be passed on to consumers exclusively through a corresponding reduction in petrol prices.
Industry estimates suggest the arrangement could impose an additional burden of approximately Rs49 per litre on domestically refined petrol, while the government intends to provide consumers with relief through a Rs14.71-per-litre reduction in the petroleum levy.
The decision has raised questions about why domestic refineries should repeatedly bear the cost of consumer relief while the upstream exploration and production (E&P) sector could benefit from higher international crude oil prices.
Industry figures put international petrol prices at around $112 per barrel, compared with crude oil prices of approximately $119 per barrel, excluding premiums, freight, insurance and other import-related costs. This represents a negative gasoline-to-crude differential of about $7 per barrel, reflecting an unfavourable pricing environment for refiners.
Although a negative petrol crack spread does not necessarily mean that a refinery’s overall GRM has turned negative, industry stakeholders warn that the combined impact of compressed diesel margins and the latest pricing intervention could significantly reduce refining profitability.
Refineries must procure crude oil at prevailing international prices, while restrictions on the prices they can charge for locally refined products limit their ability to recover feedstock and other costs. Industry representatives say prolonged interventions could affect production, maintenance, working capital and investment.
The biggest concern is the future of Pakistan’s approximately $6 billion refinery upgradation programme, which aims to modernise existing facilities, improve fuel quality, reduce furnace oil production and strengthen energy security.
Four refineries have signed upgradation agreements with the Oil and Gas Regulatory Authority (Ogra), while the country’s largest state-owned refinery has yet to sign an agreement, reportedly because of reservations among its foreign shareholders.
The latest pricing decision could complicate investment decisions, as refinery modernisation requires substantial equity, long-term financing and commitments from international lenders and technology partners.
Investors assess such projects on the basis of predictable cash flows, sustainable refining margins and a stable regulatory framework. Industry stakeholders fear that repeated interventions could make it difficult for companies to secure financing for multibillion-dollar upgrades, particularly when lenders must consider the possibility of similar measures during the repayment period.
The refining industry’s concerns have also brought the upstream E&P sector into focus. Unlike refineries, which purchase crude oil as feedstock and earn revenue by processing it into petroleum products, oil producers can benefit directly from higher international crude prices through improved realised prices for their output.
Industry representatives argue that the government should consider whether extraordinary gains made by upstream producers could contribute towards temporary consumer relief instead of repeatedly placing the burden on domestic refineries.
They say the petroleum value chain should share the cost of protecting consumers during periods of exceptional international price volatility. However, any mechanism to capture additional gains from upstream producers would need to account for existing petroleum concession agreements, fiscal arrangements and incentives for domestic exploration and production.
In a communication dated October 30 to the chief executives of Pak-Arab Refinery Limited, Pakistan Refinery Limited, Attock Refinery Limited, National Refinery Limited, Cnergyico and ENAR, the Petroleum Division directed all refineries to deposit the price differential under the Petroleum Levy head of account C03901.
Refineries were also instructed to submit daily reports of domestic motor spirit sales, along with Computerised Payment Receipts (CPRs) and payment challans, to the Petroleum Division and Ogra for verification and reconciliation.
