Oil refineries urged to swiftly upgrade plants

The government has asked oil refineries to accelerate their multibillion-dollar modernisation plans under the amended brownfield refining policy and has set a six-year timeframe for project completion while offering an additional incentive to the refineries that upgrade plants within three years, sources say.

At a meeting, Petroleum Minister Ali Pervaiz Malik conveyed the federal cabinet's decision to the heads of oil refineries with the directive to finalise and sign upgrading agreements at the earliest.

The meeting was attended by Petroleum Secretary Hamed Yaqoob Sheikh, Additional Secretary Petroleum Zafar Abbas, Attock Refinery Chief Executive Officer Adil Khattak, National Refinery CEO Asad Hasan, Cnergyico Pk Vice Chairman Usama Qureshi, Pak-Arab Refinery Managing Director Irteza Qureshi and Pakistan Refinery MD Mohsin Mangi.

Officials said the minister told refinery executives that the cabinet had approved changes to the Pakistan Oil Refining Policy for Up-gradation of Existing (Brownfield) Refineries, 2023, aimed at removing hurdles that delayed the signing and execution of agreements.

According to the cabinet's decision, the overall project implementation period will be slashed to six years, however, the incentive will continue for seven years. Refineries that complete the upgrade projects within three years will be entitled to an additional benefit of 0.5%.

Malik emphasised that all refineries should move quickly to conclude agreements and expressed the government's desire that deals should be signed in the presence of Prime Minister Shehbaz Sharif. He directed the Petroleum Division and refinery managements to settle outstanding issues as soon as possible.

The decision follows consideration of amendments to the brownfield refining policy by the Cabinet Committee on Energy. According to the cabinet's decision, the period available to the refineries for signing upgrade agreements with the government has been reduced from 90 days to 60 days.

The revised framework says the dispute-resolution mechanism incorporated into the agreements or other related deals will comprise Pakistani institutions and will be governed by the Pakistani law.

Refineries that do not sign the upgrade agreements as well as those that have not implemented the already signed agreements will face penalties without exception, according to the cabinet's decision.

The government has, however, decided to continue the existing mechanism of deemed duty, subject to proposed modifications. The inland freight equalisation margin (IFEM) mechanism will also continue for now, though authorities plan to eventually replace it with an appropriate structure by separating various adjustments, including those related to sales tax. A significant institutional change approved under the revised policy pertains to the role of the Oil and Gas Regulatory Authority (Ogra). The Petroleum Division will be responsible for signing and implementing refinery upgrade projects instead of Ogra.

Ogra's role will be confined to its statutory mandate as a regulator, while non-regulatory functions envisaged for the authority under the original 2023 brownfield policy will either be performed by the Petroleum Division or through alternative institutional arrangements.

The government has directed the State Bank of Pakistan to consider developing a policy allowing refineries to keep foreign exchange, subject to its consideration by the Economic Coordination Committee.

The Petroleum Division has been tasked with formulating a policy to encourage the establishment of a naphtha cracker plant and ensuring effective implementation of the amended brownfield policy in coordination with ministries, organisations and other stakeholders.

The government plans to showcase the amended refining policy at global forums to attract foreign investment into the refining sector, including through roadshows in Saudi Arabia, Qatar, Oman, Kuwait and other Middle Eastern countries as well as Azerbaijan and Turkiye.