Reporting snapshot · 1 November 2026 (Asia/Karachi). The mechanism is set to run for 30 days and the Petroleum Division's letter has not been published in full, so the notified text, its effective date and any later revision remain unknown. The margin figures are the refiners' own; no company-level accounts or regulator calculation behind them has been published.
What the cabinet decided
Pakistan’s federal cabinet has made domestic oil refineries pay for a cut in the petroleum levy. On the night of Friday, 30 October, it directed refineries to deposit Rs49 a litre into the petroleum levy account to offset a reduction of Rs14.71 a litre in the levy itself, The Express Tribune reported on 1 November.
The instruction runs through a Petroleum Division letter issued on 30 October. Under the revised mechanism, a refinery’s ex-refinery petrol price is calculated by fixing the premium, incidentals and customs duty at their 7 March 2026 levels for the next 30 days. The difference between the import price based on Pakistan State Oil’s actual import costs and that revised ex-refinery price must then be surrendered into the petroleum levy account, the newspaper reported, citing the letter.
The arithmetic is lopsided. The levy falls by Rs14.71 a litre; the industry puts its contribution at roughly Rs49 a litre, more than three times the relief. The 30 October price publication still carried the full Rs80 petroleum levy and Rs5 climate support levy on petrol, which KhabarWire set out that day; the cabinet decision came after that notification, so its effect falls on pricing from here.
Why the contribution exceeds the cut
Refinery executives have published their own breakdown. Attock Refinery chief executive Adil Khattak said the government’s decision to incorporate pre-war premiums and incidentals into motor spirit pricing would cost refineries about Rs35 a litre. A further Rs14 a litre comes from diverting part of their customs duty recovery towards reducing the petroleum levy. Together that is the Rs49 a litre.
Khattak tied the second half of that sum to a promise the industry says it was given. The Brownfield Refineries Up-gradation Policy requires the proceeds of a 10 per cent customs duty to be deposited into dedicated refinery accounts to help finance upgrade projects. “This decision strikes at the very foundation of the Brownfield Refineries Up-gradation Policy,” he said, arguing that diverting the money “defeats the objective of this provision” and undermines the policy’s assurance of protection against adverse changes during a project’s execution.
That assurance matters because refinery upgrades are long, capital-heavy projects. Pakistan’s petroleum minister asked Washington on 26 October for finance for a refinery upgradation programme and for long-term LNG supply, as KhabarWire reported at the time. The same government is now changing the pricing formula those investments would earn under.
Why refiners say they cannot absorb it
The industry’s complaint is cumulative rather than confined to petrol. Khattak said refineries had already agreed twice to cap their spread on high-speed diesel, first at $41.89 and later at $38. The new petrol formula, in his account, is “yet another serious loss”.
Cnergyico Pk is more exposed than most because of the crude it runs. Its vice chairman said the company has been importing higher-priced crude oil from the United States, which yields more gasoline than the Middle Eastern grades Pakistani refineries traditionally process. “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, adding that the company was already not recovering its actual diesel crack because of the government’s intervention there.
A second refinery chief executive attacked the pace of the change rather than its size. “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,” he said. Industry officials warned that abrupt interventions could discourage crude diversification, including imports from the United States, at a time when Pakistan is courting American energy investment.
There is also a factual dispute about consultation. Petroleum Minister Ali Pervaiz Malik had said, while defending an earlier diesel price reduction, that the government had held talks with refineries. Company officials told The Express Tribune that no such consultation preceded the petrol decision.
The quarter that complicates the industry’s case
The refiners are not pleading poverty about the recent past. Nikkei Asia reported on 1 November that Pakistan’s major refineries recorded a nearly twentyfold surge in combined profit in the quarter through September, helped by rising refining margins during global energy disruptions. The same report described Islamabad’s intervention as a cap on refinery margins introduced as retail prices hit consumers hard.
Both things can be true. A bumper quarter reflects margins earned before this mechanism, on crude bought and products sold in July to September; a 30-day formula governs what refineries earn next. But the windfall is politically useful to a government that needs to show relief without spending, and it weakens the claim that the industry cannot carry any part of the cost.
Where the levy fits
The petroleum levy is one of the government’s largest revenue lines. On a litre of petrol it sits alongside a Rs5 climate levy and Rs20.56 of customs duty, and it raised Rs4.4 trillion over four years against a cumulative target of about Rs4.2 trillion, as KhabarWire reported from the petroleum minister’s written reply to the National Assembly. The government has told the assembly the collection is part of the fiscal targets agreed under the International Monetary Fund’s Extended Fund Facility, and has ruled out cutting the levy now.
That is the squeeze the refinery decision resolves, at least for 30 days: a levy reduction that answers the demand for relief, financed by an industry rather than by the budget or by borrowing.
What is still uncertain
The notified text has not been published. It is not known whether the 30-day window began with the cabinet decision or with a later price publication, and neither the Petroleum Division nor the regulator has explained in public how the surrender will be computed for each refinery.
Nor is it known how refineries will respond. They can absorb the contribution, try to recover it through other product prices, delay crude purchases, or challenge the mechanism; none has said which. Whether the customs duty diversion is reversed after 30 days, and what replaces the mechanism, is also unstated.
The effect on the pump is unresolved in the other direction. A Rs14.71 levy cut only reaches consumers if the daily price notification passes it through, and petrol was still being published at Rs377.91 with the full levy on 30 October.
Finally, the profit figures behind the government’s political case are combined and backward-looking. The nearly twentyfold increase is an industry total for one quarter, not a statement about any single company’s current margins, and no refiner has published accounts covering the period the new formula applies to.
