World

Government Petrol Pricing Change Could Cost Refineries Rs49 per Litre

By Recorder Report

ISLAMABAD – The government’s recent revision of the Motor Spirit (MS) pricing mechanism is expected to impose a financial loss of Rs49 per litre on domestic refineries, raising concerns about the viability of multibillion‑dollar refinery upgrade projects that require an estimated USD5‑6 billion investment. Adil Khattak, Chief Executive Officer of Attock Refinery Limited (ARL), told a government communication that incorporating pre‑war premiums and incidentals into the MS pricing would cost refineries about Rs35 per litre. An additional diversion of Rs14 per litre from customs duty recovery to reduce the Petroleum Levy would bring the total adverse impact to Rs49 per litre. Khattak expressed serious concern that the decision was made without consulting the refining industry, despite the sector having already made substantial concessions by agreeing to cap its spread on High‑Speed Diesel (HSD) at USD41.89 and later at USD38. He said the change directly undermines the Brownfield Refineries Upgradation Policy, which had provided for depositing proceeds from the 10 percent customs duty into dedicated refinery accounts to partially finance upgradation projects. “Diverting these funds for other purposes defeats the very objective of this provision,” he observed. The ARL chief executive also noted that the government’s move undermines an explicit assurance under the policy that protects refineries against adverse changes during the project execution period, which he said was fundamental to establishing the financial viability and bankability of multibillion‑dollar refinery investment projects. He described the sudden change in the MS/petrol pricing mechanism on 30 October 2026 as a major setback for Pakistan’s refining sector, which had been preparing to undertake ambitious upgradation projects after years of policy uncertainty and delays. Four refineries signed their Upgradation Agreements on 24 September 2026, and the fifth refinery, PARCO, was expected to join the programme shortly, following the long‑awaited final approval of the Brownfield Refineries Upgradation Policy after years of delays. According to Khattak, each year’s delay had cost the national economy an estimated USD1.5 billion. He said the timing of the government’s decision was particularly concerning as refineries were engaged in extensive discussions with local and international financial institutions to mobilise the enormous funding required for the projects. These investments are unprecedented in Pakistan’s industrial sector in terms of both technical complexity and financial magnitude. Khattak warned that an arbitrary change in the agreed financial framework after the signing of formal upgradation agreements raises serious questions about policy consistency, regulatory certainty and the credibility of government commitments. The decision could undermine investor and lender confidence at a critical stage when refineries were attempting to secure financing for their projects. He further questioned the manner in which the decision had been taken, noting that neither the government nor the Petroleum Minister apparently considered it necessary to consult the industry that would bear its financial consequences. The latest development has raised concerns over the financial commitments made by refineries under the Brownfield Refineries Upgradation Policy, particularly given the substantial investment required to upgrade existing facilities, improve operational efficiency and enhance the quality of petroleum products. The refineries had relied on the policy framework and associated fiscal incentives while making their investment decisions. Any unilateral alteration in the agreed financial arrangements could therefore affect the implementation of their upgradation programmes. After nearly seven years of policy formulation, repeated amendments and prolonged uncertainty, the refining sector had finally reached the implementation stage of investments of historic significance. Khattak urged the government to urgently revisit its decision, engage meaningfully with the refineries and ensure that the financial framework and protections promised under the Brownfield Refineries Upgradation Policy were fully honoured. He warned that another setback could jeopardise projects that had already suffered years of costly delays and were considered essential for Pakistan’s long‑term energy security.