Page 84 - CMA Journal (Jul-Aug 2026)

ECONOMY O T H E R F E A T U R E S

WATCH However, these projections rely on successful C

implementation, which has historically lagged. In
Pa
addition, this policy o ers scal incentives such
10 % tari protection on MS and HSD for seven
re
years; escrow-based nancing capped at 27.5% of
By: ICMA Research and Publication Department project cost for new machinery (24.5% for used);
Re
IFEM reimbursement of crude imports; and sales
tax exemption on imported equipment in order to
Pakistan’s Refinery Reset: The $6 Billion increase the viability of projects. Nevertheless,
Ho
these incentives are a scal trade-o , as tari
Test of Investment and Execution protection and tax exemptions decrease ti
government revenue; however, they may increase
ac
the import-substitution bene ts in the future.
Pakistan's re nery sector has underutilized capacity Re nery-sector revenue declined from PKR 2.381 trillion • Stability Clauses and Investor Protection: This
compared to the leading countries in the world for in FY24 to PKR 2.182 trillion in FY25, a reduction of policy has also introduced stability and parity
re ning, especially China, the United States, and India. In approximately PKR 0.199 trillion (PKR 199 billion), or clauses to protect investors from adverse changes
2025, Pakistan is ranked 39th in terms of oil re ning 8.4%. PACRA attributes the FY25 decline primarily to or policy decisions related to scal, taxation,
capacity, with 474,000 barrels per day. The oil re nery falling global oil prices, reduced sales volumes, and regulation, and foreign exchange policies, creati
sector comprises ve major players, including Pak-Arab narrowing re ning spreads. However, the subsequent a critical feature for lenders who fund Ref
Re nery Company Limited (PARCO), Attock Re nery rise in global oil and re ned-product prices amid The renewed push is now moving towards installed capacity is approximately twice the long-duration projects, particularly those for
Limited (ATRL), National Re nery Limited (NRL), Pakistan geopolitical tensions demonstrates that higher oil prices implementation: in August 2026, all ve major re neries throughput. The problem is not the lack of re ning re nery modernization, with high capital needs.
=
Re nery Limited (PRL), and Cnergyico Pk Limited (Byco do not automatically translate into stronger re nery rea rmed their readiness to sign upgradation capacity, but the mismatch of the product slate, as Also, these provisions address a core barrier, su
Petroleum Pakistan Limited). The sector is playing a pro tability. agreements, with the government expecting these re neries were set up to make high quantities of that no investor will commit to projects with
critical role in meeting Pakistan’s domestic petroleum Furthermore, wars and supply disruptions in major agreements to unlock more than $6 billion in investment. furnace oil, a fuel whose local demand has already multi-year payback periods without a steady
demand and reducing reliance on imported re ned oil-producing and transit regions can push crude and The planned upgrades are expected to support domestic largely collapsed. The upgrade is not just to expand foreseeable policy atmosphere. This policy also
products. Currently, the re ning industry has the capacity re ned-product prices higher, while disruptions to production of Euro-V fuels, reduce reliance on imported capacity, however; it recon gures the product mix enables the re neries to supply products to d
m
to process 20 MTPA in Pakistan; however, persistent shipping routes such as the Strait of Hormuz can increase petrol and diesel, and strengthen Pakistan’s energy to match the actual market demand. The US $6 Ogra-licensed OMCs and to export the surplus •
operational and investment constraints have kept freight and supply costs. At the same time, periods of In October 1997, the Government of Pakistan issued the dependence on imported petroleum products. security. billion Financing requirement will pose a petroleum products, depending on the domestic
formidable challenge. Domestic capital markets
re neries operating below their full potential. weaker global demand or oversupply can exert Petroleum Policy 1997, providing key incentives The Brown eld Push: Modernising Key Incentives under the updated policy: lack the depth of funding for projects of this scale; demand requirements. m
downward pressure on crude prices. including the re nery pricing formula. Further incentives ▪ Tari Protection & Deemed Duties • h
The performance of Pakistan’s re ning sector remains Existing Re neries hence, the policy is heavily reliant on foreign • The Economic Payo - What Pakistan Stands to • h
highly sensitive to movements in international oil Re nery Policy Evolution were introduced in 2007 and 2018, but failed to attract Despite the 2023 policy, implementation remained slow • 10% tari protection capital, long-term debt, and con dence of Gain: The wider economic impact of the policy
markets and geopolitical developments. This volatility is The importance of local re neries and their contribution su cient investment, leaving the sector with ageing because of unresolved issues a ecting the commercial • Incremental duties investors. The Petroleum Division has a mandate to goes beyond the upgradation and modernisation •
o
evident in the sector’s recent nancial performance. to economic growth is clear. infrastructure and limited modernisation. This policy gap viability of re nery-upgrade projects. By 2026, the • 7.5% HSD deemed duty conduct roadshows in Qatar, Saudi Arabia and of re nery projects. The successful upgrade shoul
eventually led to the introduction of the Pakistan Oil
Re ning Policy for Upgradation of Existing/Brown eld government renewed e orts to remove these ▪ Escrow-Based Financing other Gulf countries in order to bring in foreign translate into increased utilisation, increased
investment. However, nancing arrangements can
-
Re neries in 2023, subsequently amended in February bottlenecks and operationalise the policy, while also • 27.5% cap for new machinery take between 6-12 months to nalise, and projects domestic production of petrol and HSD, reduced
2024. The policy focuses on upgrading existing re neries proposing further amendments to increase domestic can be a ected by exchange-rate volatility and furnace oil production, decreased POL imports, an
A
to achieve Euro-V fuel standards, increase petrol and HSD diesel production and strengthen energy security amid • 24.5% cap for used machinery nancing risks due to the large equipment foreign exchange savings. However, the economic
production, reduce furnace-oil output, and lower heightened global supply risks. ▪ Tax & Duty Exemptions requirements for imports, which are also paid in bene ts can be balanced with the risks of nancin
• Customs-duty reimbursement foreign currency. the delay in projects and the scal expense of
• Sales-tax exemption • Product-Mix Transformation-Economic Logic incentives, as well as possible potential market
▪ Investor Protection & Flexibility and Fiscal Cost: The policy’s core economic constraints. The key measure of success should be
• Stability & parity clauses rationale lies in shifting the product mix in favour of the volume of investment disbursed, project
completion, increased production over time, and
• FX accounts high-value outputs, while the scal cost is related to the volume of import substitution achieved, rathe
the costs of the tax. Petrol production is expected
• Freedom to sell to rise by 72 % from 10,700 TPD to 18,400 TPD, than investment pledges alone. The policy sets th

• Export permission while HSD is expected to rise from 21,240 TPD to stage for transformation, but this transformation
29,520 TPD. At the same time, the production of should materialise, relying on private sector
• The Investment Challenge-Ambition vs. furnace oils will be reduced by 63%, from 15,417 willingness and ability to invest capital into th
Feasibility: The amended policy calls for $5-6 TPD to 5,714 TPD. This reorientation would not only process, the government’s capacity to keep the
billion of new investments for upgrading ve help Pakistan save on the importation of petrol and policy stable, and the global nancing environmen
existing re neries; however, there is a trouble spot HSD, which cost about $1.5–2 billion annually, but for large-scale industrial projects in emerging
in the investment case that is complicated by a would also help the country save foreign exchange markets.
fundamental structural issue. For example, the
Source: PACRA signi cantly as a result of delayed modernisation.

82 ICMA’s Chartered Management Accountant, Jul-Aug 2026