Petroleum Division Submits Draft Upgrade Agreements for Refineries to ECC
The government seeks Economic Coordination Committee approval for draft Upgrade Agreements under the amended Oil Refining Policy, aiming to unlock $6 billion of investment and boost Euro‑V fuel output.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Positive · Buy bias
Oil & Gas sector benefits from $6 bn investment and incentives; buy bias on refinery ticker ISL.
Sectors & Direction
Desk read
Desk call: Buy bias · Positively affected
- Oil & GasPositively affected
Companies
Companies Mentioned
- ISL· Positively affected · Buy bias
Mentions in This Briefing
Sectors: Oil & Gas — Positive · Buy bias. PSX tickers: ISL. Oil & Gas sector benefits from $6 bn investment and incentives; buy bias on refinery ticker ISL.
Full Story
Open on Business Recorder## Background
The Petroleum Division has moved to obtain Economic Coordination Committee (ECC) approval for a draft Upgrade Agreement (UA) that will be signed with existing/brownfield refineries under the amended Pakistan Oil Refining Policy for Upgradation of Existing/Brownfield Refineries, 2023.
## Policy Amendments
- The Cabinet Committee on Energy approved amendments to the policy on 28 July 2026; the federal cabinet ratified them on 10 August 2026. - The changes introduce incentives for refineries to upgrade plants, increase Euro‑V petrol and diesel production, cut furnace‑oil output, and improve overall refinery efficiency. - Expected investment: roughly US$6 billion in the refining sector.
## Implementation Framework
- Inter State Gas Systems (ISGS) has been appointed as the implementation entity for the Petroleum Division. - ISGS will manage the execution of Upgrade Agreements, operate Refinery Upgradation Accounts, monitor projects, engage technical consultants and auditors, and administer incentive payments. - A high‑level committee (Secretary Petroleum Division, Secretary Law & Justice, OGRA Chairman, SIFC Chairman) has been formed to finalise the UA, with inputs from Finance, NCMC, SIFC, ISGS, refineries and legal advisers (Orr Dignam).
## Key Provisions of the Draft Agreement
- Provides a uniform contractual framework for all refinery upgradation projects. - Sets rights, obligations, milestone verification, and incentive disbursement mechanisms. - Draft circulated to Law and Finance Divisions on 1 September 2026; both divisions gave formal comments and cleared the document.
## Incentives and Penalties
- Refineries must sign UAs by 1 October 2026 or face a 5 % deemed duty on high‑speed diesel (HSD) deposited into the Refinery Upgradation Account. - Early signatories enjoy reduced deemed duty (2.5 % if signed by 1 Oct, zero by 15 Nov). - Incentives are deposited into the Refinery Upgradation Account rather than OGRA escrow accounts. - Projects completed within three years earn an extra 0.5 % incentive per saved year; completion timeline reduced to five years plus a one‑year cure period, with a 1 % incentive reduction for extensions. - Non‑compliant refineries risk licence revocation and loss of incentives.
## Expected Economic Impact
- The upgradation programme is projected to generate ≈ US$1 billion in annual foreign‑exchange savings. - The policy is designed to attract foreign investment, with Saudi Arabia already showing interest in Pakistan’s refinery sector.
## Next Steps
- The draft Upgrade Agreement is now before the ECC for formal approval. - Once approved, ISGS will commence signing UAs with individual refineries and overseeing the rollout of upgrade projects.