Cabinet approves adjustment of policy changes to increase Euro-V fuel production

The Cabinet Committee on Energy on Tuesday approved amendments to Pakistan’s Oil Refining Policy 2023 that will enable the modernization of Pakistan’s existing oil refineries to produce Euro-V compliant gasoline and diesel, while reducing production of furnace oil and other low-value petroleum products, according to a statement released by the Prime Minister’s Office (PMO).

Prime Minister Shehbaz Sharif chaired the Cabinet Committee meeting at the Prime Minister’s House where the members reviewed refinery upgrades, energy sector reforms and progress in the implementation of the refining policy.

The Prime Minister said that upgrading existing oil refineries was an urgent national requirement and an important pillar of Pakistan’s energy security framework. He added that modernized refineries would not only better meet the country’s energy needs, but also help reduce dependence on imported fuels while increasing the supply of environmentally friendly petroleum products.

The meeting was informed that upgrading of existing refineries was essential to increase production capacity. Officials said the production of Euro-IV and Euro-V compliant fuels was necessary to meet Pakistan’s international environmental obligations, reduce air pollution and provide consumers with higher quality fuel.

Prime Minister Shehbaz directed the authorities to introduce reforms to improve the performance of the Oil and Gas Regulatory Authority (OGRA) and better meet market demands to promote competition, transparency and investment in the energy sector.

He stressed that the amended policy must be implemented effectively and without delay and warned that negligence or unnecessary delays would not be tolerated.

Instructing relevant ministries and institutions to accelerate the reform process while maintaining close coordination with all stakeholders, Prime Minister Shehbaz reaffirmed the government’s commitment to pursue sustainable reforms in the energy sector, promote modern technology and create a favorable environment for investment.

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The Prime Minister also directed the authorities to hold road shows in Qatar, Saudi Arabia and other Gulf countries to promote the changed policy on brownfield refinery projects.

Meanwhile, officials told the meeting that the changes regarding brownfield refineries were aimed at ensuring the production of environmentally friendly Euro-V compliant petrol and diesel while reducing the production of heating oil and other lower quality oil products.

Furthermore, Prime Minister Shehbaz praised Petroleum Minister Ali Pervaiz Malik and his team for their work on the refining policy changes and directed the authorities to increase Pakistan’s strategic reserves of petroleum products.

The meeting was attended by Planning Minister Ahsan Iqbal, Finance Minister Ahad Khan Cheema, Finance Minister Muhammad Aurangzeb, Petroleum Minister Malik, Senior Federal Secretaries, among other senior officials.

Prelude to policy changes

The approval comes after weeks of uncertainty over proposed changes to the Brownfield Refinery Policy, with industry stakeholders expressing concern that the government could retroactively reduce estimated tariff protection from 7.5% to 5%.

Representatives of the refiners argued that such a move would punish companies for delays they say were caused by the government’s failure to implement upgrade agreements, despite the industry having accepted the draft agreements in 2024.

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However, government sources maintained that the proposed reduction was linked to refiners’ failure to sign the upgrade agreements within the stipulated time frame.

Industry officials denied this claim, saying the agreements were never delayed by the refiners and that they had repeatedly requested the Petroleum Division, OGRA and other government forums to complete the signing process.

The dispute centered on deemed tariff protection, a key incentive under the 2023 policy designed to support investment in refinery upgrades to produce Euro-V compliant fuels and lower fuel oil output. Industry representatives argued that the 7.5% protection mechanism existed for more than two decades and argued that a reduction would undermine the economics of planned investment. They also said that the changes introduced through the Finance Bill 2024 – which moved major oil products from the zero-rated to the exempted sales tax regime – significantly increased sunk tax costs and further delayed the implementation of the policy.