Pakistan’s $6 billion refinery project stalled

Pakistan’s plan to modernise its existing refineries has once again faced administrative delays. Despite preparations for signing the agreements, the multi-billion dollar investment plan has been further delayed due to the non-completion of the approval process.

According to Attock Refinery Limited (ARL) Chief Executive Adil Khattak, the drafts of the refinery upgrade agreements are now likely to be presented to the Economic Coordination Committee (ECC) for approval on September 14. The drafts have been agreed upon between the refineries and the Interstate Gas Systems (ISGS).

Adil Khattak has questioned why ECC approval is made necessary for these agreements. According to him, there is no precedent in the past for such agreements to be submitted for approval in this manner.

The delay has come at a time when the government is trying to bring in large-scale investment in the refinery sector this year. The projects of the five existing refineries are expected to attract a total investment of about $5-6 billion.

The aim of the upgrade programme in Pakistan is not only to increase the production capacity of refineries. Under this project, attention is also being paid to converting low-cost furnace oil into high-value products and increasing the production of clean fuels.

The project includes five major refineries in the country. These include Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), Pak Arab Refinery Company (PARCO), Attock Refinery Limited and Cnergyico. The total crude oil processing capacity of these refineries is about 350,000 barrels per day.

In August, the government had indicated that the project would be put into operation by finalising the agreements soon. At that time, the total investment for the five refineries was estimated at $4.5-5 billion. PARCO had expressed its willingness to invest about $600 million for its green fuel project.

The government has described the project as crucial for Pakistan’s energy needs. The modern refineries will be able to produce better quality petrol and diesel locally. This could help reduce dependence on imported fuel.

One of the main objectives of the project is to produce Euro-5 standard fuel. This change will help bring the quality of local fuel closer to global standards.

The issue of delay in refinery upgrade is not new. The current policy was introduced in 2023, but the implementation of the agreements has not progressed at the desired pace. The government has made further changes to the policy this year to speed up investment.

The government has now also set a new deadline for completing the agreements. For refineries that do not sign the agreement by October 1, the mechanism has been put in place to transfer the additional demand duty on HSD to the refinery upgradation account.

On the other hand, the demand duty will be reduced in a phased manner for refineries that complete the agreements by the due date. According to the current framework, there is scope to bring this rate up to 2.5 percent and then to zero by November 15, 2026.

The real problem for refineries now is not the preparation of agreements but the actual signing of them and the commencement of investment. If the approval process takes longer, both the cost and completion period of the projects may be affected.

The project is also important for Pakistan because the country meets a large part of its fuel needs through imports. Improving the capacity and output of local refineries can reduce pressure in times of global prices or external supply disruptions.

However, the success of the project will not depend only on contracts. The government will also have to maintain policy continuity, timely approvals and a clear financial environment for investment. These factors will play a decisive role in converting the long-pending refinery upgrade into a practical investment.