Pakistan’s oil industry has pushed back against proposals to overhaul the country’s fuel pricing mechanism, warning that replacing the current benchmark-linked formula with a guaranteed return model would create an unsustainable fiscal burden by forcing the government to subsidize fuel prices year-round.
Industry officials said recent calls for a guaranteed return model, voiced by former ministers and analysts, reflect a limited understanding of refinery economics and risk, undermining the country’s fuel supply chain.
“The existing pricing framework, tied to international benchmarks, is globally practiced and time-tested, ensuring alignment with world markets,” officials said. “A guaranteed return approach would reintroduce an open-ended subsidy regime, which even the International Monetary Fund consistently discourages.”
Officials noted that listed refineries in Pakistan have collectively faced losses exceeding Rs. 100 billion in recent years, with returns on investment remaining among the lowest despite the sector’s strategic importance. They emphasized that refinery margins are cyclical and structurally constrained, and temporary gains during extraordinary geopolitical events do not reflect long-term economics.
Several product streams—including furnace oil, gasoline, and bitumen—frequently trade below crude parity, eroding margins even when high-speed diesel margins show temporary strength. Officials also highlighted that landed crude costs now include higher freight, insurance, duties, and financing expenses, further compressing margins.
Industry players said windfall gains, if any, primarily benefit upstream exploration and production companies, many of which are government-owned and sell oil and gas at internationally benchmarked prices, directly contributing to state revenue. Refineries, in contrast, operate on thin or even negative margins with limited upside.
Officials warned that selective policy interventions during temporary margin improvements, combined with market-based pricing during weaker cycles, could distort incentives and harm investor confidence in the capital-intensive sector.
