The government has reconstituted the board of Pak-Arab Refinery Company (PARCO) – a strategically vital and integrated energy firm – retaining a federal minister and all but one bureaucrat as directors for three more years.

Out of 10 board seats, Pakistan has the right to appoint six directors, while the remaining seats are filled by the United Arab Emirates, which holds 40% stakes in the company. The government has retained all current directors, barring one, according to the federal cabinet’s decision. It has replaced Jahanzeb Khan with Rabab Sikandar Sultan, a grade-22 officer of the Pakistan Customs Service. Rabab’s husband, Sikandar Sultan Raja – the incumbent Chief Election Commissioner of Pakistan – has also served on the board in the past.

Of the five directors, four are serving bureaucrats, two in their capacity as ex-officio, and one federal minister, according to the new board’s composition. Secretary Petroleum Hamed Yaqoob Sheikh, the Chairman of the board, and Secretary Finance Imdadullah Bosal are the ex-officio directors.

The reconstituted board will meet in Vienna, Austria, on July 2. Board members are entitled to a $3,500 fee for attending a meeting. However, it is not clear whether they will receive the fee for the July 2 meeting due to instructions from the prime minister.

Nonetheless, the government’s instructions are not binding on the board and any change in fee arrangements can only be made through board resolutions.

The federal cabinet approved the reconstitution after the term of the existing directors expired last month. The Board Nomination Committee had recommended Rashid Langrial in his capacity as secretary of the revenue division. But the Prime Minister’s Office has appointed Langrial in his personal capacity. Langrial, who is also Chairman of the Federal Board of Revenue (FBR), had been recently inducted into the PARCO board, whose term expired on May 21. He has been reappointed for a term of three years. Ahad Khan Cheema, Federal Minister for Economic Affairs, has again been reappointed as a director for a term of three years.

PARCO is considered a strategically vital, integrated oil company in Pakistan’s energy supply chain. However, during FY2024-25, the company’s profit margin eroded and its liquidity tightened amid volatile market conditions, according to the Ministry of Finance’s last annual report on state-owned enterprises (SOEs).

PARCO is a joint venture between Pakistan, which holds 60% stakes, and Abu Dhabi Petroleum Investment Company, which holds the remaining 40%. Unlike other state-owned companies, the government has not declared PARCO an SOE. Despite PARCO not “legally” being an SOE, the finance ministry monitors its operations and issues reports on its performance.

The government is of the view that PARCO cannot be declared an SOE due to the participants’ agreement between Pakistan and the UAE company. It has stated in the past that the SOEs Act, 2023, does not apply to PARCO due to its unique legal and corporate status.

The Securities and Exchange Commission of Pakistan (SECP), the Lahore High Court and the attorney general of Pakistan have also given opinions about the company’s legal status.

But this does not bar the government from appointing directors to the board who have rich experience in the energy sector. PARCO is not the only government-fully or partially-owned company where bureaucrats are appointed as directors. The finance ministry has also filled bilateral development finance institutions (DFIs) with serving and retired bureaucrats.

The board fees in entities such as Pak-Brunei Investment Company, Pak-Kuwait Investment Company, Pak-Oman Investment Company and Saudi-Pakistan Industrial and Agriculture Investment Company are also significantly higher than fees paid by some other SOEs to their board directors. After assuming office, Finance Minister Muhammad Aurangzeb decided to reorganise these DFIs. But he subsequently did not publicly disclose any restructuring and revamping plan to remove bureaucrats from these boards.

Prime Minister Shehbaz Sharif has twice attempted to limit the fees that serving bureaucrats can receive while serving on these boards. Deputy Prime Minister Ishaq Dar is also against payment of hefty board fees to bureaucrats serving as ex-officio or in their personal capacity as directors.

The PML-N government first attempted to limit the annual fee that a bureaucrat can receive from all boards to Rs600,000 and then to Rs1 million. But the bureaucracy is of the view that serving on these boards also carries risks and should be financially compensated.

PARCO weaknesses

The finance ministry’s last report highlighted significant challenges facing PARCO and required corrective measures.

The report stated that there was a sharp decline in refining margins, exposing PARCO’s profitability to global oil price cycles. The company had high dependence on imported crude, which exposes it to exchange-rate risk, and there was also no hedging on oil, according to the finance ministry.

There were also significant cash outflows from dividends during margin downturns, straining liquidity. There were lower throughput levels and reduced asset utilisation efficiency, stated the report. The ministry said the company’s increasing finance costs eroded net margins in a high-interest-rate environment.

According to the finance ministry’s last available report on SOE performance, PARCO’s net sales and services decreased from Rs1.14 trillion in FY2024 to Rs965 billion in FY2025, reflecting a decline of roughly 15%. The fall was attributable to lower international crude prices, lower throughput and subdued local demand, particularly in diesel and furnace oil segments.

But the joint ventures continued to yield dividends, demonstrating healthy investment returns despite sectoral headwinds. Net profit after tax was Rs22.2 billion in FY2025 versus Rs55.1 billion in FY2024, a 60% contraction in bottom-line profitability, according to the finance ministry.