Pakistan Refineries Warn Pricing Overhaul Threatens $6B Modernization Drive

ISLAMABAD — Pakistan’s leading oil refineries have raised alarms over a recent government decision to revise petrol pricing formulas, warning that the move threatens a planned $6 billion modernization of the country’s refining sector. Industry executives argue that the policy shift could severely undermine investment and render domestic operations financially unviable.

The Petroleum Ministry’s directive, issued on Friday, orders refineries to surrender price differentials based on March 7 benchmarks. Industry analysts estimate this adjustment will impose an additional financial burden of up to Rs49 ($17.5) per liter on locally produced petrol.

Refiners have criticized the October 30 decision, stating that it was implemented without consultation with key stakeholders. They argue that the directive undermines the government’s commitments under the Brownfield Refineries Upgradation Policy, particularly at a critical juncture when companies are negotiating financing for major modernization initiatives.

“The timing could hardly have been worse,” Adil Khattak, Chief Executive Officer of Attock Refinery Limited (ARL), told Arab News. “Refineries are currently engaged in extensive discussions with local and international financial institutions to mobilize the enormous funding required for projects that are unprecedented in Pakistan’s industrial sector, both in their technical complexity and the magnitude of investment involved.”

The official directive, issued by the Petroleum Division and viewed by Arab News, mandates that six major refiners—including Pak-Arab Refinery Limited (PARCO), Pakistan Refinery Limited (PRL), Attock Refinery Limited (ARL), National Refinery Limited (NRL), Cnergyico PK, and ENAR—immediately implement the revised pricing formula.

According to the government, the measure is designed to shield consumers from volatile fuel costs associated with disruptions in global energy markets, stemming from the United States-Iran conflict.

Under this temporary arrangement, while public petrol prices will reflect actual import costs based on recent Pakistan State Oil (PSO) shipments, local refineries are required to calculate ex-refinery prices using pre-war premiums, incidentals, and customs duty levels from March 7. This approach forces refineries to surrender any positive price differential to the government through the petroleum levy, effectively absorbing the financial difference.

Industry executives estimate that this arrangement will impose an additional cost of approximately Rs35 ($0.13) per liter on refineries through baseline pricing adjustments, and another Rs14 ($0.051) per liter through diverted customs duty recoveries.

This decision comes as Pakistan’s refining sector prepares for a long-awaited modernization program. While four refiners signed upgrade agreements on September 24 after years of policy delays, PARCO has yet to finalize its agreement.

Khattak highlighted that previous regulatory delays have cost the national economy an estimated $1.5 billion annually.

Refining executives noted that companies have already agreed twice to cap high-speed diesel (HSD) crack margins—first at $41.89 and later at $38 per barrel—to support broader price stabilization efforts.

“This decision strikes at the very foundation of the Brownfield Refineries Upgradation Policy,” Khattak stated. “The policy specifically requires that proceeds from the 10 percent customs duty be deposited into dedicated refinery accounts to partially finance upgradation. Diverting these funds for other purposes defeats the very objective of this provision.”

Pakistan’s Petroleum Division and Minister of Petroleum Ali Pervaiz Malik did not respond to requests for comment. However, officials have previously defended such pricing interventions as essential measures to prevent market profiteering and shield consumers from global energy shocks.

Industry executives are urging the government to engage in immediate consultations, restore tariff protections, and uphold its commitments under the upgrade framework. They warn that the revised pricing mechanism could render domestic refining operations financially unviable, threatening overall energy security.

“If these decisions are not reconsidered, they could ultimately force refineries to curtail operations or even shut down, further increasing Pakistan’s dependence on imported petroleum products,” warned Usama Qureshi, Vice Chairman of Cnergyico PK Limited. Qureshi highlighted the contradiction between Islamabad’s efforts to attract foreign investment from Saudi Arabia, Qatar, and the United States, and domestic regulatory interventions that erode investor confidence. “We fully recognize the need to protect consumers, but short-term relief cannot come at the cost of destroying domestic refining capacity, jeopardizing energy security, and undermining investor confidence,” he told Arab News.

Other industry officials echoed these concerns, highlighting the operational imbalance of forcing refiners to purchase crude at post-war international spot market rates while pricing output at pre-war levels.

“The government’s desire to lower prices for the public is totally understandable and is appreciated and supported by the industry,” said Asad Hasan, Chief Executive of National Refinery Limited. He noted that refiners have already contributed over Rs100 billion ($361 million) to consumer welfare by agreeing to diesel margin caps. “It is quite perplexing that the government wants refineries to buy crude oil at current post-war premiums, yet wants us to sell motor spirit (MS) at pre-war prices,” he told Arab News.

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