ISLAMABAD: After six years of deadlock, the government on Tuesday approved a revamped Brownfield Refining Policy to modernise the country`s existing petroleum refineries, paving the way for an estimated investment of about $6 billion to improve fuel quality, increase petrol and diesel output and reduce furnace oil production.

The policy was approved by the Cabinet Committee on Energy, led by Prime Minister Shehbaz Sharif, and will supersede all previous refining policies.

The BrownfieldRefining Policy provides a regulatory framework for upgrading existing oil refineries, modernising their operations and improving their financial viability.

The revised policy, amended from the original 2023 framework, provides stability clauses to protect investment, tax incentives, foreign exchange accounts for the import of machinery against the export offurnace oil, and measures to enhance offshore and onshore storage capacity for greater energy security.

Under the policy, the five existing refineries will be required to upgrade, modernise or expand their facilities toproduce cleaner fuels meeting Euro-V emission specifications and maximise production of motor gasoline (petrol), high-speed diesel and other value-added products by minimising furnace oil and other low-value fuels.

As a result, total petrolproduction is expected to increase by 72pc to 18,400 tonnes per day from the current 10,700 tonnes. HSD output isprojected to rise by 39pc to 29,520 tonnes per day from 21,240 tonnes, while furnace oil production is expected to fall by 63pc to 5,714 tonnes per day from the current 15,417 tonnes.

The Petroleum Division will notify Euro-V fuel specifications for compliance after the upgradation of refineries within one month. If the government decides to improve fuel specifications beyond Euro-V, revised timelines will be notified separately.

Under the fiscal regime, a minimum customs duty or regulatory duty of 10pc will apply to imported motor gasoline and diesel for seven years from the date of notifica-tion of the new policy.

The refineries will also be allowed 10pc tariff protection or deemed duty on the ex-refinery price of motor gasoline and diesel for seven years from the date of signing of the upgrade agreement and opening of a joint escrow account with Ogra within 90 days of notification of the new policy.

Until the opening of the account, the incremental incentive will be deposited in the Inland Freight Equalisation Margin (IFEM) pool.

The prevailing 7.5pc deemed duty on HSD for sustainability will continue after the seven-year incentive period for 20 years or till deregulation, whichever is earlier.

Any disallowed sales tax related to refinery operations, confirmed by the Federal Board of Revenue (FBR) due to the exempt status of petroleum products, will continue to be reimbursed through IFEM for FY26 till the validity of upgrade agreements executed under the policy.

Equipment to be installed or material to be used in refinery upgradation projects will also be exempted from sales tax.

The policy also allows refineries to sell their products to any oil marketing company licensed by Ogra. They will also be allowed to export surplus petroleum products, subject to Ogra`s approval, after meeting domestic demand.

There will be binding agreements between refineries and oil marketing companies for the sale and purchase of major products, including motor gasoline and HSD, based on product review meetings to ensure a smooth oil supply chain.

For an existing refinery to be eligible for fiscal incentives, it will have to execute a legally binding upgrade agreement with Ogra within 90 days of the policy`s notification.

The agreement will include committed upgrade outcomes, including maximum production of Euro-V compliant petrol and HSD, other value-added products and a significant reduction in furnace oil, as finalised in the front-end engineering design of the upgrade project.

The agreement will also cover milestones and timelines, including feasibility study, front-end engineering design, financial close, engineering, procurement and construction,potential configuration, tentative product slate after upgradation and project management methodology for on-time delivery.

Refineries defaulting on government dues, including petroleum levy and climate support levy, will not be eligible to avail benefits under the policy until a legally binding and enforceable settlement is reached with the government.

Until then, defaulting refineries will deposit incremental incentives into the IFEM pool.

Once a settlement is reached, the refinery will become eligible to sign the upgrade agreement, open the joint escrow account with Ogra and start depositing incremental incentives on a prospective basis.

Funds in the joint escrow account can only be drawn and used by the respective refinery on the upgrade project after payment of all outstanding government dues.

If a refinery defaults on government dues after signing the upgrade agreement, Ogra will suspend its right to claim expenditure from the joint escrow account until the outstanding amount is paid along with a late payment surcharge.

Refineries importing used plant, machinery and equipment for the upgrade project will be allowed to withdraw a maximum of 24.5pc of the total project cost from the joint escrow account. Those importing new plant, machinery and equipment will be allowed to withdraw up to 27.5pc of the project cost.

The release from the escrow account will be on a pro rata basis, while the remaining funding will come from the refineries` own resources.

Funds from the escrow account will be available for withdrawal after financial close and upon completion of 25pc physical pro-gress of the upgrade project or opening of matching letters of credit against expenditure made for each milestone.

Ogra will have a unilateral right to withdraw funds from the relevant joint escrow account in case of milestone failures.

The policy also provides for a comprehensive monitoring mechanism for upgrade commitments through third-party evaluations and independent auditors.

If a refinery decides to quit the upgrade project at any stage, funds in the joint escrow account will be withdrawn by Ogra for use in IFEM, while amounts already spent will be recovered from the defaulting refinery.

Disputes will be settled through an Islamabad-based arbitration tribunal, with one member each nominated by the disputing parties and a third nominated by those two members.

A difficulties committee comprising the secretaries of petroleum, finance and law will address issues and anomalies during implementation.

On the demand of the oil industry, the upgrade projects will be entitled to a fixed stabilisation regime.

The policy includes provisions to protect and indemnify refineries against disruption or adverse changes in laws, regulations, fiscal regime, foreign exchange regulations or tax laws that could affect the economics or timelines ofupgrade projects.

Refineries will also be allowed to open and maintain onshore foreign currency accounts to service foreign currency obligations and maintain a credit balance equivalent to one year`s debt in relation to the upgrade project.

These accounts may be funded through refinery export proceeds, including proceeds from the sale of furnace oil.