For Pakistan, the real test is what this investment delivers
Pakistan is preparing for one of the largest investments in its oil-refining sector, with the planned modernization of five existing refineries expected to attract more than $6 billion. This is an important opportunity, but the real question is not how much investment the programme attracts. It is what Pakistan gets in return. The government must ensure that this investment translates into higher domestic production of petrol and diesel, lower furnace oil output, reduced dependence on imported refined products, better refinery efficiency and measurable savings in foreign exchange.
The five refineries covered by the programme are Pak-Arab Refinery Limited (PARCO), Pakistan Refinery Limited (PRL), National Refinery Limited (NRL), Cnergyico and Attock Refinery Limited (ARL). Pakistan’s latest consolidated official refining capacity figure remains around 450,000 barrels per day, equivalent to about 20.5 million tonnes annually. However, the sector has been operating well below its installed capacity, reflecting the mismatch between existing refinery technology and the country’s changing demand for petroleum products. [Petroleum Division, Pakistan Oil Refining Policy].
Why It Matters
The underutilization of refining capacity is therefore not simply a matter of ageing plants. It is also a structural problem involving the type of products refineries are able to produce. Pakistan’s demand has increasingly shifted towards petrol and high-speed diesel, while demand for furnace oil has weakened, particularly as the power sector has moved towards other energy sources. This has made it increasingly important to upgrade refineries so that they can produce a higher proportion of commercially valuable fuels.
The latest government initiative follows several years of discussion. The Oil Refining Policy was originally notified in 2023 and subsequently amended in 2024, but implementation faced difficulties related to taxation, regulation and the commercial viability of refinery investments. In July 2026, the Council of Common Interests approved further amendments, paving the way for implementation. The government has also directed efforts to attract financing and investment, including through international roadshows. [Petroleum Division, 2026].
Under the revised implementation framework, Inter State Gas Systems (ISGS) has been designated as the implementation agency. Its responsibilities include facilitating agreements with refineries, monitoring projects and managing the mechanism through which upgrade-related incentives will be provided. Independent technical verification is also intended to ensure that investment commitments are translated into actual progress. [Ministry of Energy/Petroleum Division, 2026].
This is important because signing agreements will only be the beginning. Refinery modernization is a technically complex and capital-intensive process. Foreign financing, feasibility studies, front-end engineering and design, financial close, construction and commissioning will take time. The government should therefore distinguish clearly between investment commitments and investment actually deployed. A refinery should not be considered successfully upgraded merely because an agreement has been signed.
The economic case for modernization is nevertheless strong. Pakistan continues to depend heavily on imported petroleum. According to the Pakistan Economic Survey 2025-26, petroleum imports reached about 13.88 million tonnes during July-March FY2026, compared with 12.53 million tonnes in the same period a year earlier, while the petroleum import bill rose to approximately $8.9 billion. [Pakistan Economic Survey 2025-26, Ministry of Finance]
These figures underline why refinery modernization matters for the external sector. Every additional liter of petrol or diesel produced efficiently at home has the potential to reduce the need for imports, although the actual saving will depend on refinery output, international oil prices and domestic demand. The government has estimated that the upgraded refineries could eventually save around $1 billion annually in foreign exchange. This should be regarded as a potential outcome rather than a guaranteed saving. [Petroleum Division, 2026].
The programme also seeks to change the product mix. Government projections indicate that petrol production could rise from around 10,700 tonnes per day to 18,400 tonnes, while high-speed diesel output could increase from about 21,240 tonnes to 29,520 tonnes per day. At the same time, furnace oil production is projected to fall from around 15,417 tonnes to 5,714 tonnes per day. This is perhaps the most important economic objective of the entire programme. Pakistan does not simply need more refining capacity; it needs refineries capable of producing the fuels the economy actually requires. [CCoE/Petroleum Division, 2026].
The latest demand figures reinforce this point. Petroleum product consumption reached about 13.64 million tonnes during July-March FY2026, an increase of 3.5 percent over the same period a year earlier. The transport sector accounted for 82.5 percent of petroleum demand, demonstrating the central importance of petrol and diesel to economic activity. [Economic Survey 2025-26, Ministry of Finance].
There is also an environmental dimension. The upgraded refineries are expected to move towards production of Euro-V standard fuels. Better-quality fuels can contribute to lower emissions and bring domestic refining closer to modern international standards. However, the environmental benefits will depend on actual implementation, product quality and effective regulatory enforcement. [Petroleum Division, 2026].
Making It Work
The government must also consider the cost of the incentives being offered to refineries. Public policy support can be justified when it produces wider economic benefits, such as lower imports, greater energy security, employment and stronger domestic industrial capacity. But incentives should not become an open-ended transfer to refinery owners without measurable economic returns.
This is why the implementation mechanism matters. Government incentives should be linked to clearly defined milestones, independently verified technical progress and actual improvement in refinery output. Payments or benefits should follow verified investment and performance rather than simply the signing of agreements. This would protect public resources while giving investors a clear and predictable framework.
The government should also establish a transparent set of performance indicators. These could include the amount of investment actually deployed, refinery utilization, additional petrol and diesel production, reduction in furnace oil output, reduction in petroleum-product imports and the foreign-exchange savings generated. Such indicators would allow the government and the public to judge whether the programme is delivering the promised economic benefits.
As an economic analyst, I believe the government should make these indicators the core of the programme rather than treating them as secondary reporting requirements. The success of the refinery upgrade should ultimately be judged through measurable improvements in production, import substitution, efficiency and foreign-exchange savings. A clear system of monitoring would also strengthen investor confidence by providing certainty about how incentives are linked to performance.
Looking Ahead
There is another issue that deserves attention. Pakistan’s future fuel demand will not remain unchanged. Electric vehicles, hybrid vehicles, improved fuel efficiency and changes in the electricity-generation mix could gradually alter the demand for petroleum products. Refinery investments therefore need to be commercially and strategically viable over the long term rather than being based solely on today’s demand pattern.
At the same time, this does not weaken the case for modernizing existing refineries. Pakistan will continue to require substantial quantities of liquid fuels for transport, agriculture, industry and other economic activities for many years. The real challenge is to ensure that domestic refineries are technologically capable of meeting this demand efficiently and competitively.
From an economic policy perspective, the government should therefore shift its focus from announcing investment to measuring economic returns. The $6 billion figure is impressive, but the size of the investment alone does not make the programme a success. The real benefits will come only if modernization increases efficient domestic production, reduces dependence on imported refined products, improves refinery economics and strengthens Pakistan’s energy security.
Three outcomes should be treated as essential benchmarks. First, petrol and high-speed diesel production should increase sufficiently to reduce import dependence. Second, furnace oil production should decline to a level consistent with actual domestic demand. Third, government incentives should remain firmly linked to independently verified investment and performance.
Pakistan has an opportunity to modernize an important part of its industrial and energy infrastructure. But this opportunity should be approached with financial discipline and a clear focus on economic outcomes. The government should ensure that the refinery programme does not become merely another investment announcement, but a measurable improvement in the country’s energy security, industrial efficiency and balance of payments.
The current geopolitical environment also makes this objective more important. Pakistan remains exposed to international oil prices, shipping disruptions and interruptions in global energy supply chains. Recent government efforts to strengthen strategic petroleum reserves and fuel-supply resilience underline the importance of reducing vulnerability to external shocks. Modernizing domestic refining capacity can form an important part of that broader energy-security strategy.
The real measure of success will not be the size of the investment announced, but the economic results it delivers for Pakistan.
