Business Recorder Editorials 4th August 2026

Redrawing the problem?

EDITORIAL: Interior Minister Mohsin Naqvi’s observation that Pakistan’s governance system has effectively “collapsed” will find few serious dissenters.

Years of administrative paralysis, weak public service delivery and institutional dysfunction have left ample evidence that the existing model is failing. His accompanying proposal to create new provinces and administrative units has therefore reopened one of Pakistan’s oldest constitutional or political debates.

Yet before the country redraws provincial boundaries – if it must – it must first answer a more fundamental question: is the size of the provinces really the bigger problem, or is it the way they are governed?

There is certainly merit in debating whether Pakistan will eventually require more provinces. Smaller administrative units can, under the right circumstances, bring government closer to citizens, improve service delivery and make governance more responsive.

Many countries have reorganised their internal structures over time as populations expanded and administrative demands grew more complex. There should, therefore, be no objection to discussing the issue openly and seriously.

The difficulty begins when new provinces are presented as though they constitute the central solution to Pakistan’s governance crisis.

The country’s greatest failure since the 18th Constitutional Amendment has not just been insufficient devolution in reality from Islamabad to the provinces.

It has also been the unwillingness of provincial governments to devolve meaningful political, administrative and financial authority to local governments. That was, after all, one of the principal objectives behind removal of the concurrent list from the constitution and devolution itself: to bring decision-making as close to the citizen as possible.

Instead, provinces largely became repositories of powers that were never meaningfully passed on to the grassroots. That reluctance is hardly accidental.

Every transfer of authority to genuinely empowered local governments also transfers budgets, patronage and political influence. Few provincial administrations, regardless of political affiliation, have shown much enthusiasm for surrendering those powers.

Local government elections are delayed, financial authority remains centralised and municipal institutions continue operating with limited autonomy. It is, therefore, difficult to argue that creating additional provinces would automatically improve governance when the existing provinces have themselves resisted meaningful decentralisation.

There is an irony here that deserves acknowledgement. The period during which Pakistan arguably witnessed its strongest and most empowered local government system came under General Pervez Musharraf.

Whatever one’s views of military rule, local governments during that period exercised considerably greater administrative and financial authority than they have under successive elected governments. That uncomfortable reality raises difficult questions about the commitment of democratic governments to one of democracy’s most important foundations: governance at the grassroots.

Nor has the advocacy for more provinces sufficiently addressed the causes of today’s paralysis. Administrative inefficiency, bureaucratic red tape, political interference, weak accountability and entrenched corruption have steadily undermined governance across the federation. Those problems do not disappear simply because provincial boundaries are redrawn.

The same bureaucracy, the same administrative culture and many of the same political incentives would continue operating within smaller jurisdictions unless broader institutional reforms precede any constitutional restructuring.

Practical considerations also deserve attention. Creating new provinces would require constitutional amendments, broad political consensus, complex negotiations over assets, liabilities, civil services, revenue distribution and administrative infrastructure.

At a time when provinces themselves continue struggling with law and order, fiscal management, poorly funded education, healthcare and local administration, embarking upon such an ambitious restructuring would inevitably consume enormous political energy while offering no guarantee that the underlying governance failures would actually be resolved.

None of this means the proposal should be dismissed outright. Pakistan may well require additional provinces in the future as demographic and administrative pressures continue to grow.

But; sequencing matters. The priority today should be to complete the unfinished business of devolution by genuinely empowering local governments, strengthening administrative accountability, reforming the bureaucracy, and improving provincial governance. Only then can the country properly assess whether further constitutional restructuring remains necessary.

The interior minister is spot on insofar as his recommendation that the present system requires serious reform is concerned.

The question is whether Pakistan is confronting the real source of its dysfunction or merely proposing to redraw the map before fixing the machinery that has failed to make the existing one work.

A policy for refineries at last

EDITORIAL: Finally, a brownfield refinery policy has been approved. It took six years and three governments to formulate one. The policy offers incentives to the five existing refineries to upgrade, modernize and/or expand.

The objective is to enable them to produce environment-friendly Euro V-specification petroleum products, and increase the share of value-added products by minimizing furnace oil (FO) production.

Critics argue that the policy has come a little too late. Upgrading existing refineries and building new ones have been under discussion among policymakers since the early 2000s. At the time, investing in the sector made perfect economic sense.

However, the global landscape has shifted significantly over the past two decades. Numerous new refineries have come online in the Middle East and other parts of the world.

Meanwhile, global demand patterns are on the cusp of a major shift due to the growing adoption of renewables in the energy mix—particularly the transition towards electric vehicles. Thus, global supply is high, while demand is not growing in tandem. Consequently, there is a glut of refining capacity in the region.

As a result, petroleum products’ margins have become razor-thin during normal times, and the dollar savings from producing more products may not be substantial after accounting for the foreign exchange spent on importing plant and machinery.

Moreover, upgrading may not be commercially viable for some local refineries, even with the incentives.

Nevertheless, it is still a welcome move. The government realized the risks associated with import dependence during the recent US-Iran war, which compelled the authorities to seriously consider increasing domestic production and building strategic petroleum reserves. Thus, upgrading refineries has become a strategic imperative.

The delay over the past few years was mainly due to the proposed sales tax exemption on imports of plant and machinery.

The IMF (International Monetary Fund) did not agree to it, while the government failed to negotiate a solution. Years were wasted in the process. The exemption has now been granted, allowing the policy to be rolled out.

Depending on each refinery’s current configuration, the upgrades will have different impacts. Nonetheless, all refineries are expected to produce more motor gasoline (petrol) and high-speed diesel (HSD), while reducing FO production. This would improve the yield from refining crude oil, which is largely imported.

Moreover, better-quality Euro V-specification fuels will be produced. This is in line with Pakistan’s commitments under international treaties and is particularly important for a country highly vulnerable to climate change, where overall air quality is deteriorating rapidly.

Needless to say, there are challenges. Apart from the sales tax exemption, the incentives include a deemed-duty contribution—2.5 percent on HSD and 10 percent on motor spirit (MS)—to be deposited by refineries into escrow accounts. These funds can be used as equity by the refineries, covering up to 27.5 percent of the total project cost. The remainder must be arranged by the refineries through equity or debt.

Most refineries may seek debt financing of around USD3.5 billion–USD4 billion, as the total project cost is estimated at USD5 billion–USD6 billion. Domestic banks do not have the appetite or dollar liquidity to finance projects of this scale. Therefore, the debt will likely have to be raised internationally.

However, foreign lenders may have concerns about the country’s multiple risks. Thus, securing financing will not be easy.

Moreover, not every refinery has shown full interest. As of now, the country’s largest refinery, which is majority-owned by the government, has not signed off on the policy due to certain concerns raised by its foreign shareholders.

Thus, following policy’s approval, the next challenge is securing funding, which may be hindered by a lack of commercial viability. A better approach could be to focus on petrochemicals, which are the need of the hour—specifically, crude-oil-to-chemicals (COTC) refineries designed primarily to produce petrochemicals rather than fuels.

The world is moving in this direction. However, Pakistan is far behind. It was never part of the research and development race.

The optimal outcome would have been to upgrade the refineries in a timely manner, but crucial time was wasted. Nonetheless, the current petroleum ministry team deserves appreciation for finally getting the policy approved. It remains to be seen how successful it will be.