Monitoring Desk
ISLAMABAD: The Petroleum Division has sought approval of the Economic Coordination Committee (ECC) for draft Upgrade Agreements (UAs) to be signed with existing brownfield refineries under the amended Pakistan Oil Refining Policy, with refineries facing financial penalties if they fail to execute the agreements by October 1, 2026.
According to official documents, the Petroleum Division has finalised the draft UAs following consultations with relevant stakeholders and has now placed the agreements before the ECC for consideration and approval.
The move comes after the Cabinet Committee on Energy (CCoE), in its meeting on July 28, 2026, approved amendments to the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries, 2023. The Federal Cabinet subsequently ratified the amendments on August 10, 2026.
The amended policy is aimed at encouraging existing refineries to undertake major upgradation projects to increase production of Euro-V compliant petrol and diesel, enhance petroleum product production capacity, reduce furnace oil output and improve the overall configuration and efficiency of the refining sector.
The upgradation programme is expected to attract approximately $6 billion in investment in Pakistan’s refining sector and generate annual foreign exchange savings of around $1 billion, according to the Petroleum Division’s briefing to the Federal Cabinet.
Under the amended policy, refineries seeking to benefit from the incentives are required to execute UAs with the Ministry of Energy (Petroleum Division), replacing the earlier arrangement under which agreements were to be executed with the Oil and Gas Regulatory Authority (OGRA).
The Petroleum Division said Inter State Gas Systems (ISGS) had been designated as the policy implementation entity on behalf of the Petroleum Division.
ISGS will perform key functions under the amended policy, including execution of UAs, operation of Refinery Upgradation Accounts, monitoring of upgradation projects, engagement of technical consultants and auditors, and administration of incentive payments from the accounts.
The government has also constituted a committee comprising the Secretary Petroleum Division, Secretary Law and Justice Division, Chairman OGRA and Chairman Special Investment Facilitation Council (SIFC) to finalise the UAs.
The committee held a series of consultative meetings to update the existing draft UA, which had earlier been finalised by OGRA and refineries, in line with the amended policy and revised implementation arrangements.
Representatives of the Finance Division, National Coordination and Monitoring Committee (NCMC), SIFC, ISGS and refineries also participated in the process, while legal firm M/s Orr Dignam provided legal assistance.
According to the Petroleum Division, the proposed UA would establish a uniform contractual framework for implementing refinery upgradation projects under the amended policy.
The agreement defines the respective rights and obligations of the parties and provides mechanisms for project implementation and monitoring, administration of Refinery Upgradation Accounts, verification of project milestones and disbursement of incentives in accordance with the policy.
The draft UA was circulated to the Law Division and Finance Division for their formal comments on September 1, 2026.
The Law Division subsequently conveyed that the agreement was in order and aligned with the Refining Policy, while the Finance Division also furnished its comments. The Finance Division’s observations were placed alongside counter-comments for consideration.
The Petroleum Division stated that the draft UA had been finalised after the consultative process and was being submitted to the ECC to enable timely operationalisation of the amended policy.
The summary further noted that since the agreement had already been finalised through a consultative process involving the relevant stakeholders, it had not been circulated for further comments.
The Cabinet had earlier set a firm deadline for refineries to execute the agreements. According to official documents, while ratifying the CCoE decision on August 10, the Federal Cabinet stipulated that refineries must sign UAs with the Ministry of Energy (Petroleum Division) by October 1, 2026, failing which financial consequences would apply.
The Petroleum Division had informed the Cabinet that the amended policy was primarily designed to ensure production of Euro-V compliant petrol and diesel, increase petrol and diesel production capacity and minimise furnace oil and other lower-value petroleum products.
The government expects the refinery upgradation programme to reduce the country’s dependence on imported petroleum products and generate substantial foreign exchange savings. The Petroleum Division told the Cabinet that the projects could generate annual foreign exchange savings of approximately $1 billion.
The Cabinet was also informed that the revised policy could attract significant foreign investment into Pakistan’s refining sector, particularly as Saudi Arabia had expressed interest in investing in the country’s refinery sector.
The Petroleum Division further clarified that the amendments directed by the CCoE on July 28 had been incorporated into the final amended policy.
To strengthen project monitoring, the role of independent third-party consultants was also elaborated to ensure independent certification of project progress and milestones.
The government has also incorporated safeguards under which a defaulting refinery, or a refinery lagging behind in physical progress, would not be allowed to avail incentives until corrective measures were taken.
The Federal Cabinet approved several major changes while ratifying the CCoE decision. These included reducing the deadline for signing UAs from 60 days to 45 days and shifting the responsibility for signing agreements from OGRA to the Petroleum Division.
Another significant change was the transfer of incremental incentives into Refinery Upgradation Accounts maintained by the Petroleum Division instead of escrow accounts with OGRA.
The Cabinet also decided to transfer policy implementation and monitoring functions from OGRA to the Petroleum Division, fundamentally altering the institutional framework for supervising refinery upgradation projects.
Under the revised incentive structure, a refinery that operationalises its upgrade project within three years may receive an additional incentive equivalent to 0.5 percent of the capped limit for every year saved.
The project completion timeline was reduced to five years plus a one-year cure period, with a one percent reduction in incentive. The government may also consider an additional one-year extension beyond the cure period, subject to justification.
The Cabinet further stipulated that licences of refineries failing to commission their upgraded projects within the specified maximum period of five years plus one year could be liable to revocation by the competent authority.
The financial consequences for missing the October 1 deadline are also significant. Refineries that fail to execute UAs by October 1, 2026, will be required to deposit the deemed duty above five percent on HSD into the Refinery Upgradation Account, with the transfer to be completed by June 30, 2027, according to the Cabinet decision.
For refineries signing UAs by October 1, the deemed duty on HSD will be reduced to 2.5 percent and will subsequently be reduced to zero by November 15, 2026.
The Cabinet also decided that international arbitration would not be allowed without prior approval of the Federal Cabinet, while missing definitions would be incorporated into the policy to ensure unambiguous interpretation and implementation.
The ECC approval of the draft UAs is therefore expected to be a key step before the agreements are executed with refineries, paving the way for implementation of the revised policy and potentially billions of dollars in refinery investment.
The development is particularly significant for Pakistan’s refining sector, where the government has been seeking to shift production towards higher-value Euro-V petrol and diesel while reducing furnace oil output and improving refinery efficiency. The success of the programme will now depend on timely execution of the UAs, financing and completion of the planned projects, as well as effective monitoring of milestones and incentives.