Pakistan’s brownfield refining policy to fetch $4.5 billion to upgrade infrastructure — industry insider

https://arab.news/2bmq2

ISLAMABAD: The Pakistani government’s approval of a brownfield refining policy aimed at upgrading local oil refineries to produce cleaner fuels is expected to attract approximately $4.5 billion in investments for improving the country’s existing refining infrastructure, according to an industry insider on Friday.

The outgoing federal cabinet granted approval for the policy on Wednesday after several months of delay, with the goal of enhancing the capacity and efficiency of oil refineries to produce more eco-friendly petrol and diesel.

The government anticipates the policy will help increase the refining capacity of petrol by 100 percent and diesel by 50 percent within the next six years, reducing the country’s dependence on imported refined products.

“The approval of the refining policy is a step in the right direction which will help Pakistan save the foreign exchange through a reduction in the import bill,” Aslam Khan, an official of Oil Companies Advisory Council, told Arab News, adding it would help attract around $4.5 billion in investment for the upgradation and modernization of the existing refineries.

Khan outlined that incentives under the approved policy include a 10 percent deemed duty on petrol and an additional 2.5 percent deemed duty on high-speed diesel for local refineries.

“Deemed duty” serves as a government incentive to encourage refineries to upgrade their facilities to produce higher-grade and environmentally friendly fuel.

“Deemed duty will help the refineries upgrade their infrastructure and reduce production of furnace oil significantly,” Khan said, adding the refineries were currently exporting furnace oil on discounted rates since its use in the country’s power plants had been stopped to overcome pollution.

In the preceding month, Pakistan approved a greenfield refinery policy aimed at attracting foreign investment to construct new facilities, as the existing refineries struggled to meet the growing demand for petroleum products.

Subsequently, four state-owned Pakistani companies signed a memorandum of understanding (MoU) to establish a greenfield refinery costing $10 billion in Balochistan province. The policy was designed to streamline the process of setting up a state-of-the-art refinery with Saudi involvement.

However, energy experts remain skeptical about the modernization and upgrading of existing refineries, terming it a “time-consuming and costly process.”

“The incentive of deemed duty to the refineries will ultimately burden consumers with an increase in petroleum prices,” Afia Malik, a senior researcher at the Pakistan Institute of Development Economics, told Arab News.

She said the upgradation of the local refineries was “long overdue” to cut the country’s import bill, but this “needs a special focus of the authorities” to reduce dependence on the imports of refined products.

“Let’s see how this policy is implemented,” she said. “This will take at least five to six years to upgrade the existing infrastructure of the refineries.”