Government Tightens Brownfield Refinery Upgrade Rules
The federal government will impose financial penalties on oil refineries that fail to sign Upgradation Agreements (UAs) with the Ministry of Energy’s Petroleum Division by October 1, 2026.
The decision came as the Federal Cabinet ratified amendments to the Pakistan Oil Refining Policy for Upgradation of Existing Brownfield Refineries, 2023, incorporating directions issued by the Cabinet Committee on Energy (CCoE) on July 28, 2026.
The revised framework is designed to accelerate refinery modernisation, increase production of Euro-V petrol and diesel, and reduce the output of furnace oil and other lower-value petroleum products.
Signing Authority Shifted From OGRA to Petroleum Division
Under the amended policy, refineries will now be required to sign their Upgradation Agreements directly with the Petroleum Division rather than the Oil and Gas Regulatory Authority (OGRA).
The signing period has also been reduced from 60 days to 45 days.
Policy implementation and monitoring responsibilities will similarly shift from OGRA to the Petroleum Division. Incremental incentives will be deposited into a Refinery Upgradation Account operated by the Petroleum Division instead of being maintained in escrow accounts with OGRA.
Independent third-party consultants will be responsible for certifying progress on refinery upgrade projects. Plants that fall behind schedule or default on their commitments will not receive incentives until they address the relevant shortcomings.
Government Uses HSD Duty as Compliance Incentive
One of the strongest measures in the revised policy is linked to the deemed duty on high-speed diesel (HSD).
Refineries that fail to sign their agreements by October 1, 2026, will be required to deposit the deemed duty above 5 percent on HSD into the Refinery Upgradation Account. The payment will be calculated from the later date of signing and must be completed by June 30, 2027.
In contrast, refineries that sign their agreements by October 1 will see the deemed duty on HSD reduced to 2.5 percent. It will then fall to zero by November 15, 2026.
The mechanism effectively gives refineries a financial incentive to complete the agreement process within the government’s revised deadline.
Incentives Linked to Faster Project Completion
The amended policy also introduces incentives for refineries that complete their projects ahead of schedule.
If a refinery achieves commercial operation within three years, it can claim an additional incentive equivalent to 0.5 percent of the applicable capped limit for every year saved.
The overall completion period has been set at five years, followed by a one-year cure period. However, using the cure period will result in a 1 percent reduction in the incentive.
The government may allow another year beyond the cure period, but only where sufficient justification is provided.
Licence Revocation Threat Added
The revised policy also introduces a stronger regulatory consequence for prolonged delays.
Refineries that fail to commission their upgraded units within the maximum 5+1-year outer limit could face revocation of their licences by the competent authority.
The government has also stipulated that international arbitration will not be permitted without prior Cabinet approval.
Officials said additional definitions would be incorporated into the policy to minimise ambiguity and ensure that all parties interpret its provisions consistently.
Refinery Upgrades Could Save $1 Billion Annually
The government expects the refinery modernisation programme to generate significant economic benefits.
Upgraded plants are expected to increase domestic production of higher-value Euro-V fuels while reducing reliance on imported petroleum products. The government estimates that the upgrades could save around $1 billion annually in foreign exchange.
The programme is also intended to attract fresh investment into Pakistan’s refining sector. The Cabinet was informed that Saudi Arabia has already expressed interest in the country’s refinery industry.
Across the sector, the agreements are expected to unlock approximately $6 billion in investment.
Five Operating Refineries Ready to Sign Agreements
On August 26, 2026, Petroleum Minister Ali Pervaiz Malik met representatives of Pakistan’s five operating refineries — PARCO, PRL, NRL, Cnergyico and Attock Refinery.
According to officials, all five refinery managements reiterated their readiness to sign agreements under the brownfield upgrade policy. The agreements were expected to be signed early next month.
However, a senior executive from one refinery pointed out that the amended policy had not yet been formally notified.
Once the revised policy is officially notified, refineries will have 45 days to sign their agreements with the Petroleum Division.
Deadline Now Depends on Formal Notification
The government is effectively using both the HSD duty mechanism and the potential loss of refinery licences to accelerate investment in cleaner and more efficient refining capacity.
The success of the October 1 deadline will therefore depend not only on the readiness of the five operating refineries but also on how quickly the amended policy is formally notified.
If implemented as planned, the revised framework could mark a major shift in Pakistan’s refinery modernisation drive, with cleaner fuels, higher-value production, lower import dependence and billions of dollars in potential investment at stake.