Pakistan State Oil (PSO) has reportedly approved a renewed five-year supply agreement with Pak Arab Refinery Limited (PARCO). The proposed deal will increase supplies of petrol and high-speed diesel while significantly reducing furnace oil purchases.
According to a report published by Business Recorder on October 19, 2026, the agreement is designed to improve PSO’s access to fuel produced by local refineries and strengthen the security of petroleum supplies in Pakistan.
Petrol and Diesel Supplies to Increase
Under the proposed agreement, PARCO’s monthly supply of RON 92 petrol to PSO will increase from 18,000 tonnes to 50,000 tonnes. Monthly high-speed diesel (HSD) supplies will also rise from 50,000 tonnes to 105,000 tonnes.
However, furnace oil supplies will be reduced from 32,000 tonnes to 5,000 tonnes per month.
The changes reflect the continued importance of petrol and diesel in the fuel market, alongside declining demand for furnace oil in power generation.
Five-Year Agreement to Improve Supply Security
The renewed agreement will remain in effect for five years from the date it is formally signed. It will update the commercial terms between the two companies, including pricing, payments, product quality, invoicing and supply measurements.
PSO and PARCO had continued working under their previous contractual arrangements even after the original 10-year agreement expired on July 31, 2021. PARCO confirmed in March 2025 that the existing terms would remain effective until the new agreement was signed.
Negotiations took longer than expected as both companies worked to bring the agreement in line with market conditions, regulations and industry practices.
According to the report, PSO’s Supply Coordination Committee recommended the renewal in January 2026, followed by approval from its Management Committee in February.
Furnace Oil Purchases to Fall Sharply
The proposed agreement will reduce PSO’s annual furnace oil allocation from 384,000 tonnes to 60,000 tonnes.
This reduction is intended to prevent PSO from tying up money in a fuel that has become less important as Pakistan’s power generation mix moves away from furnace oil.
At the same time, higher petrol and diesel allocations could give PSO more reliable access to locally refined petroleum products and potentially reduce its dependence on imports and associated shipping costs.
Cleaner Fuel Standards and Updated Payment Terms
The renewed agreement will require RON 92 and RON 95 petrol to meet Euro-5 fuel specifications. It will also update the quality requirements for Jet A-1 aviation fuel in line with applicable international standards.
These measures are intended to improve product quality and reduce the possibility of disputes between the companies.
The agreement will also offer greater flexibility in payment arrangements. PSO will be able to provide an irrevocable letter of credit (LC) in PARCO’s favour or make direct payment on the due date without opening an LC.
The revised late-payment formula will remove a previous additional charge of 300 basis points after 30 days. It will also protect PSO from mark-up arising from delays caused by banks while processing letters of credit.
PARCO and ARL Agreements Move Forward
PSO’s board is being approached for approval of renewed agreements with PARCO and Attock Refinery Limited (ARL).
The renewal involving Cnergyico Pk Limited (CPL) is not being submitted alongside these proposals because CPL has not agreed to unconditionally withdraw its legal case against PSO, according to the report.
Overall, the proposed PARCO agreement would significantly change PSO’s monthly fuel supply mix by increasing petrol and diesel allocations and reducing furnace oil purchases. Its final implementation will depend on the agreement being formally executed.
