Refineries to sell petrol 'below cost'

Responding to the sudden revision in the pricing system, the refineries say they are being forced to sell petrol below production cost following a policy change announced without prior consultation.

On Friday night, the cabinet decided that a reduction of Rs14.71 per litre in the petroleum levy would be compensated through a contribution of Rs49 per litre by refineries to the oil levy account.

"The decision has effectively shifted the financial burden of providing relief to consumers on to domestic refineries," industry officials argued. issued on October 30, the federal cabinet approved a revised pricing mechanism under which refineries would receive an ex-refinery petrol price calculated by fixing the premium, incidentals and customs duty at their March 7, 2026 levels for the next 30 days.

The difference between the import price determined on the basis of Pakistan State Oil's actual import costs and the revised ex-refinery price must be surrendered by refineries under the petroleum levy account. Industry officials said the mechanism would require refineries to surrender approximately Rs49 per litre, substantially exceeding the Rs14.71-per-litre reduction in the petroleum levy.

They questioned the rationale for requiring refineries to contribute Rs49 per litre to facilitate a much smaller reduction in the levy, particularly when the mechanism could force them to sell petrol below the actual cost. Refinery executives said the decision came as a complete surprise and was taken without consultation with the industry.

The move raises questions about the government's earlier assurances about stakeholder consultation. Federal Minister for Petroleum Ali Pervaiz Malik had previously said, while defending the diesel price reduction, talks with refineries had been held. However, company officials said no such consultation preceded the latest decision on petrol pricing.

Negative margins. The vice chairman of Cnergyico Pk expressed serious concern over the cabinet's decision, cautioning that the latest intervention could push the company's gross refining margins (GRMs) into negative territory.

He mentioned that Cnergyico had been importing higher-priced crude oil from the United States, which gave a higher gasoline yield than the Middle Eastern crude grades traditionally processed by the refinery. "We are bringing US crude, which is high-priced, and we are already not recovering the actual diesel crack because of the government's intervention in restricting diesel cracks," he said.

The vice chairman explained that the US crude produced a higher proportion of gasoline compared with the Middle Eastern grades that Cnergyico previously imported, making the latest petrol pricing intervention particularly damaging for the refinery's economics. "US crude has more gasoline than the Middle Eastern grades we used to import.

With this change in the pricing formula, our gross refining margins can go into negative territory," he said. The executive's remarks highlight the cumulative impact of government interventions in both diesel and petrol pricing on refinery profitability.

Industry officials said refineries were already facing pressure from restrictions on diesel cracks and the latest petrol pricing formula could further erode their margins. They warned that such interventions could discourage crude oil diversification, including imports from the US, at a time when Pakistan was seeking to strengthen its trade and energy relationship with Washington.

Regulatory uncertainty. The chief executive of another leading refinery also voiced concern over the unpredictable regulatory policies. "Nowhere in the world do policies change this quickly.

The regulatory regime has become a joke and then the government expects foreign direct investment to flow into the country," the executive remarked. He questioned how international investors could be expected to commit billions of dollars to Pakistan's refining sector when pricing policies could be changed overnight without consultation.

Industry officials cautioned that abrupt interventions could undermine the financial viability of existing refineries and damage investor confidence at a time when the government was seeking substantial investment in refinery upgrades and expansion. They maintained that while providing relief to consumers was important, the government should not achieve this objective by imposing additional financial burdens on domestic refineries.

The latest decision has once again brought into focus concerns about regulatory uncertainty, policy inconsistency and the long-term implications for investment in Pakistan's petroleum sector. Attock Refinery CEO Adil Khattak said that the latest change in the petrol pricing mechanism caused serious setback to refineries.

"The refineries, which had already agreed on two occasions to cap their spread on high-speed diesel, first at $41.89 and subsequently at $38, are now confronted with yet another serious loss," he said. The government's decision to incorporate pre-war premiums and incidentals into motor spirit pricing will reportedly cost refineries approximately Rs35 per litre.

An additional diversion of Rs14 per litre from their customs duty recovery towards reducing the petroleum levy will bring the total adverse impact to Rs49 per litre.

"This decision strikes at the very foundation of the Brownfield Refineries Up-gradation Policy, which specifically requires that proceeds of 10% customs duty will be deposited into dedicated refinery accounts to partially finance their upgrade projects. Diverting these funds for other purposes defeats the objective of this provision," he said.

"This decision undermines the policy's explicit assurance of protection against adverse changes during the project execution period. Such assurances are fundamental to establishing the financial viability and bankability of these multibillion-dollar investments. "