• Petroleum minister says removing bottlenecks crucial to implementing long-delayed policy; terms local refineries ‘critical national assets’
• Officials argue upgrades are in line with IMF’s ‘resilience and sustainability’ objectives, will improve fuel quality besides saving money

ISLAMABAD: The oil disruption in the wake of the US-Iran war has compelled the government to dust off its petroleum refining policy, which was passed almost three years ago but could not be enforced due to flawed negotiations with the Inter­nat­ional Monetary Fund (IMF).

The government has now assured the refining sector of corrective measures in the upcoming budget to revive $6 billion in investments for refining upgrades and expansion. Pakistan is losing up to $2bn in annual foreign exchange due to expensive petroleum product imports instead of crude.

The refining policy returned into the limelight after Finance Minister Muhammad Aurangzeb, at a recent meeting, assured the management of the refineries that the government was serious about removing hurdles to implementing both greenfield and brownfield refining policies amid a loss of $1bn per month on oil imports amid the war.

The minister said the matter would be addressed during the upcoming IMF visit for corrective policy action in the budget for the financial year 2026-27.

A follow-up meeting between the representatives of the refineries was held at the petroleum division on Monday, where they were asked to submit their updated positions without delay.

Petroleum Minister Ali Pervaiz Malik conceded that “despite the issuance of both refining policies in 2023, progress on implementation has remained stalled”.

He said removing bottlenecks was crucial to moving forward, adding that the government considered local refineries as critical national assets for an uninterrupted fuel supply and energy security.

“The ongoing regional situation arising from the US-Iran conflict has further highlighted the urgency of reducing reliance on external supply chains and ensuring maximum domestic refining flexibility/capability,” he said.

On the other hand, the refineries have linked the investment revival to four major enabling guarantees. They want a stability clause in the refining policy during the three to five years of the implementation phase.

They have proposed the diversion of foreign exchange proceeds of furnace oil exports towards the upgradation of refining projects, besides wanting clearly defined force majeure clauses to ensure that there are no more delays. The refineries also want the sales tax-related losses via the inland freight equalisation margin (IFEM).

Sources told Dawn that the Rawalpindi-based Attock Refinery offered to sign an agreement for refining upgrades the day the government was able to address the sales tax issue, even if it was legalised through the IFEM adjustments.

Sales tax issue

The exemption of sales tax on petroleum products was identified as the key issue affecting the viability of upgradation projects. The minister suggested that a comprehensive proposal addressing these challenges be submitted to the relevant forum (the ECC and the cabinet) before the finalisation of the budget, so that the refining policies could be implemented without delay.

The refining policy was finalised in August 2023 and approved in April 2024 after six years of consultations, but it came to naught since the federal budget 2024-25 practically cancelled the policy. This happened as the finance ministry and the Federal Board of Revenue entered an agreement with the IMF for the withdrawal of existing 10pc customs duty on the import of high-speed diesel (HSD).

The industry said the budget 2024-25 contradicted the ‘Pakistan Oil Refining Policy for New/Greenfield Refineries 2023’ and the ‘Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield 2023’.

The above policies allowed for a 7.5pc customs duty on HSD for 25 years for greenfield projects and a 10pc duty for brownfield projects for six years. The budget also envisaged exemption of sales tax on motor spirit (petrol), high-speed diesel oil, kerosene, and light diesel oil. Previously, these products were zero-rated, which meant that input sales tax on services was technically claimable against sales of these products but was piling up.

Petroleum Division officials said they had been raising with the IMF the long-delayed implementation of the brownfield petroleum refinery policy, which had stalled about $6bn in fresh investment for refinery upgrades, but could not succeed due to lukewarm support from the finance ministry and the FBR.

They argued that this demand also aligned with the IMF’s Resilience and Sustainability Facility (RSF) objectives because the upgrade would help produce petroleum products meeting European standards with minimal carbon and sulphur emissions.

Under the IMF programme, the authorities committed not to grant any tax exemptions already promised to the refineries. As a result, although petroleum products are exempt from sales tax, the required equipment, materials and supplies are subject to sales tax and other duties without input-output adjustments, creating cash flow problems for the refineries.

The petroleum division argued that existing refineries produce environmentally harmful by-products both during refining and consumption, posing health risks and worsening climate conditions. While the government has been seeking RSF funding for various projects, it has been losing out domestically due to obsolete refining technology because of what they termed a “technical misunderstanding” between the IMF, the Ministry of Finance and the FBR. “This is a simple distortion that can be addressed through reasonable dialogue,” one official said.

Published in Dawn, May 12th, 2026