UAs with refineries: PD sends summary to ECC for approval

ISLAMABAD: The Petroleum Division has sought approval of the Economic Coordination Committee (ECC) for a draft Upgrade Agreements to be executed with existing/Brownfield refineries under the amended Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries, 2023. According to sources, the Cabinet Committee on Energy (CCoE), in its meeting held on July 28, 2026, approved amendments to the Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries, 2023. The amendments were subsequently ratified by the federal cabinet on August 10, 2026. The amended policy is aimed at providing incentives to existing refineries for undertaking upgradation projects designed to increase production of Euro-V petroleum products, reduce furnace oil production and improve the overall configuration and efficiency of refineries. READ MORE: Govt to penalise refineries failing to sign UAs by Oct 1 The agreements are expected to unlock approximately $6 billion in investment in Pakistan’s refining sector. Under the policy, refineries seeking to avail themselves of the incentives are required to execute Upgrade Agreements with the Petroleum Division or its designated entity. The Petroleum Division stated that, pursuant to approval of the amended policy, Inter State Gas Systems (ISGS) has been designated as the policy implementation entity on behalf of the Petroleum Division. ISGS will undertake key functions assigned under the policy, including execution of Upgrade Agreements, operation of Refinery Upgradation Accounts, monitoring of upgrade projects, engagement of technical consultants and auditors, and administration of incentive payments from the Refinery Upgradation Accounts. The government has also constituted a committee comprising the Secretary Petroleum Division, Secretary Law and Justice Division, Chairman Oil and Gas Regulatory Authority (OGRA) and Chairman Special Investment Facilitation Council (SIFC) to finalise the Upgrade Agreement. The committee held consultative meetings to update the existing Upgrade Agreement, which had earlier been finalised by OGRA and the refineries, so as to bring it 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 assisted the committee during the process, while legal firm M/s Orr Dignam provided legal assistance. According to the Petroleum Division, the proposed Upgrade Agreement would provide a uniform contractual framework for implementation of refinery upgradation projects under the amended policy. The agreement sets out the respective rights and obligations of the parties and provides mechanisms for implementation and monitoring of upgrade projects, administration of Refinery Upgradation Accounts, verification of project milestones and disbursement of incentives in accordance with the policy. The draft agreement 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 provided its comments. The Finance Division’s observations were placed alongside counter-comments for consideration. The Petroleum Division said that, in order to operationalise the amended Pakistan Oil Refining Policy in a timely manner, the draft Upgrade Agreement had been finalised after the consultative process and was being placed before the ECC for consideration and approval. The summary noted that since the agreement had been finalised through a consultative process involving the relevant stakeholders, it had not been circulated for further comments. According to official documents, the federal cabinet, in its meeting held on August 10, 2026 while ratifying the decision of the Cabinet Committee of July 28, 2026 decided to impose financial penalties on oil refineries that fail to execute Upgradation Agreements (UAs) with the Ministry of Energy (Petroleum Division) by October 1, 2026. During the discussion, the Petroleum Division apprised the Cabinet that the key objectives of the amended oil refining policy were to produce Euro-V compliant petrol and diesel, enhance petrol and diesel production capacity, and minimise furnace oil and other lower-value products. The Cabinet was further informed that the upgradation of refineries was expected to generate annual foreign exchange savings of approximately USD1 billion. The amended policy would also help attract much-needed foreign investment into Pakistan’s refining sector, particularly as the Kingdom of Saudi Arabia had already expressed keen interest in investing in the country’s refinery sector. In response to a query, the Petroleum Division clarified that the amendments directed by the CCoE at its meeting on July 28, 2026, had been incorporated into the final draft of the amended Pakistan Oil Refining Policy for Upgradation of Existing Brownfield Refineries, 2023. The Petroleum Division also informed the Cabinet that the role of independent third-party consultants had been further elaborated to ensure independent certification. Checks had also been incorporated to ensure that any defaulting refinery, or a refinery lagging behind in the physical progress of its upgrade project, would not be able to avail incentives until corrective measures were taken. After discussion, the Federal Cabinet ratified the CCoE decision with the following stipulations: (i) refineries shall sign upgrade agreements with the Ministry of Energy (Petroleum Division), instead of OGRA, within 45 days rather than 60 days; (ii) incremental incentives shall be deposited into the Refinery Upgradation Account maintained by the Petroleum Division instead of escrow accounts with OGRA; (iii) policy implementation and monitoring functions shall be transferred from OGRA to the Petroleum Division; (iv) if an upgrade project is operationalised within three years, the refinery may avail an additional incentive equivalent to 0. 5 percent of the capped limit for every year saved; (v) the upgrade project completion timeline shall be reduced to five years plus a one-year cure period, with a one percent reduction in incentive; (vi) the federal government may consider an extension of one year beyond the cure period, subject to justification; (vii) Licences of refineries that fail to commission upgraded projects within the specified timeline, with a maximum period of 5+1 years, shall be liable to be revoked by the competent authority; (viii) Refineries that fail to execute UAs by October 1, 2026, shall deposit the deemed duty above 5 percent on HSD into the Refinery Upgradation Account, starting from the date of signing of the UA, with the transfer to be completed by June 30, 2027; (ix) Deemed duty on HSD shall be reduced to 2. 5 percent for refineries that sign the UA by October 1, 2026, and further reduced to zero by November 15, 2026; (x) No international arbitration shall be allowed without Cabinet approval; and (xi) Missing definitions shall be added to the policy to ensure unambiguous interpretation. Copyright Business Recorder, 2026

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