THE Brownfield Refining Policy is not about setting up new refineries from scratch. It is about upgrading the country`s existing refineries so they can produce cleaner and highervalue fuels.

At present, the country`s refineries produce a large share of furnace oil, a low-value product whose demand has declined over the years. The new policy aims to shift refinery output towards petrol and high-speed diesel, which are more widely used in transport and industry.

The biggest expected change is in the product mix. Petrol production is projected to rise by 72pc and dieseloutput by 39pc, while furnace oil production is expected to decline by 63pc.

For consumers, the policy does not mean an immediate reduction in fuel prices. It also does not mean immediate deregulation of the petroleum market. The impact will depend on how quickly refineries sign upgrade agreements, arrange financing, achieve financial close and complete physical work on their plants.

One major objective is cleaner fuel.

Refineries will have to produce Euro-V compliant petrol and diesel after upgradation. Euro-V fuel contains much lower sulphur than older fuel standards and is considered less harmful for vehicle emissions.

The policy gives refineries financial incentives, but with conditions. Part of the deemed duty collected on petrol and diesel will be deposited into joint escrow accounts maintained by Ogra and the respective refinery. These funds can be used only for refinery upgrade projects.

This mechanism is meant to ensure that incentives meant for modernisation are not used for other purposes.

Refineries will be able to withdraw funds only after meeting specific milestones, including financial close, physical progress or opening of matching letters of credit.

The policy also protects the government from unlimited financial exposure. If the money available in the escrow account is less than the required share of expenditure, the government or Ogra will not be bound to meet the shortfall. Refineries will have to arrange the remaining financing from their own resources.

Another important point is accountability. A refinery that defaults on government dues, including petroleum levy and climate support levy, will not be able to avail benefits under the policy unless it reaches a legally binding settlement with the government.

If a refinery fails to meet its milestones or quits the upgrade project, Ogra will have the right to withdraw funds from the escrow account and divert them to IFEM.

For refineries, the policy provides investment protection through stability clauses. These clauses are intended to protect projects from adverse changes in laws, regulations, taxes, forex rules or other government actions that could affect the economics or timelines of upgrades.

However, the benefits will not be automatic. The policy`s success will depend on timely signing of upgrade agreements, credible project financing, strict monitoring and actual completion of refinery modernisation within agreed timelines.-Khaleeg Kianicontains much lower sulphur than older fuel standards and is considered less harmful for vehicle emissions.

The policy gives refineries financial incentives, but with conditions. Part of the deemed duty collected on petrol and diesel will be deposited into joint escrow accounts maintained by Ogra and the respective refinery. These funds can be used only for refinery upgrade projects.

This mechanism is meant to ensure that incentives meant for modernisation are not used for other purposes.

Refineries will be able to withdraw funds only after meeting specific milestones, including financial close, physical progress or opening of matching letters of credit.

The policy also protects the government from unlimited financial exposure. If the money available in the escrow account is less than the required share of expenditure, the government or Ogra will not be bound to meet the shortfall. Refineries will have to arrange the remaining financing from their own resources.

Another important point is accountability. A refinery that defaults on government dues, including petroleum levy and climate support levy, will not be able to avail benefits under the policy unless it reaches a legally binding settlement with the government.

If a refinery fails to meet its milestones or quits the upgrade project, Ogra will have the right to withdraw funds from the escrow account and divert them to IFEM.

For refineries, the policy provides investment protection through stability clauses. These clauses are intended to protect projects from adverse changes in laws, regulations, taxes, forex rules or other government actions that could affect the economics or timelines of upgrades.

However, the benefits will not be automatic. The policy`s success will depend on timely signing of upgrade agreements, credible project financing, strict monitoring and actual completion of refinery modernisation within agreed timelines.-Khaleeg Kiani