Refineries warn petrol pricing change threatens $6bn upgrade plan

Pakistan's oil refineries warned on Sunday that the government's change to petrol pricing rules puts a $6 billion modernisation programme at risk, saying the decision could make it financially unviable for them to keep operating.

The Petroleum Ministry's directive, issued on Friday, tells refineries to surrender price differentials under a formula built on the 7 March benchmark. Industry estimates put the additional burden on locally refined petrol at up to Rs49 per litre.

The directive, a copy of which was seen by Arab News and reported by Independent Urdu, names six refineries: Pak Arab Refinery Limited (PARCO), Pakistan Refinery Limited (PRL), Attock Refinery Limited (ARL), National Refinery Limited (NRL), Cnergyico PK and Enar.

The change is meant to shield consumers from rising fuel prices after the US-Iran war disrupted global energy markets, according to Independent Urdu. Consumer prices will be set on Pakistan State Oil's latest landed import cost. Refineries, however, must calculate their ex-refinery sale prices on the pre-war premium, additional charges and customs duty rates in force on 7 March. Any positive differential goes to the government as petroleum levy, so the refineries carry the cost.

Industry officials estimate refiners will lose about Rs35 per litre through base price adjustments and another Rs14 per litre from customs duty collections being redirected.

Adil Khattak, chief executive of Attock Refinery Limited, told Arab News that the timing of the decision could not have been worse. He said refineries were in extensive talks with local and international financial institutions to raise money for upgradation projects.

Four refineries signed upgradation agreements on 24 September after years of policy delay. PARCO has not signed.

Khattak said past regulatory delays had cost the national economy about $1.5 billion a year. He said the Brownfield Refineries Upgradation Policy requires 10 percent of customs duty to be deposited in refineries' dedicated accounts to part-fund modernisation, and that moving the money elsewhere defeats the purpose of that clause.

Officials of the refining sector said companies had already agreed twice to cap high-speed diesel refining margins to help stabilise prices, first at $41.89 and later at $38 per barrel.

The Petroleum Division and Petroleum Minister Ali Pervaiz Malik did not respond to requests for comment. Officials have previously defended government intervention in pricing as necessary to stop profiteering and protect consumers from sudden global price spikes.

Cnergyico PK vice chairman Usama Qureshi said refineries could be forced to cut production or shut down if the decisions are not reviewed, which would increase Pakistan's dependence on imported petroleum products. He pointed to the contrast between Islamabad's efforts to attract investment from Saudi Arabia, Qatar and the United States and domestic regulatory steps that erode investor confidence.

NRL chief executive Asad Hasan said the government's wish to keep prices low for the public was understandable and that the industry supported it, adding that refiners had contributed more than Rs100 billion ($361 million) by accepting the diesel margin caps. "It is surprising that the government wants refineries to buy crude at post-war premiums but sell motor spirit at pre-war prices," he said.