Oil industry in Pakistan sounds alarm over new furnace oil levy

The Oil Companies Advisory Council (OCAC) of Pakistan has issued a strong protest against the government’s recent imposition of a hefty Petroleum Levy of PKR 82,077 per metric ton on furnace oil (FO), effective July 1 under the Finance Act, 2025.

The levy, combined with an existing climate support levy of PKR 2,665 per metric ton, has sparked fears of widespread disruption across Pakistan’s industrial landscape.

In a formal statement, the OCAC, representing major oil sector stakeholders, warned that the new fiscal measures could devastate domestic demand for FO, a deregulated fuel primarily used by key industries such as cement, textiles, shipping, and manufacturing.

Industry in crisis mode

The OCAC cautioned that the combined levies would raise FO prices by nearly 80%, making it economically unviable for industrial use. “This drastic price increase will eliminate FO domestic demand and drive a sharp decline in industrial activity,” the statement read, warning of potential operational shutdowns in sectors that rely heavily on FO for energy.

The council emphasized that the move contradicts the government’s own industrial policy goals. “Rather than enhancing revenues, it is likely to significantly reduce or eliminate FO sales within the country, thereby decreasing associated sales tax revenues and undermining industrial competitiveness,” the OCAC said.

Forced exports, financial losses

With domestic consumption expected to plummet, local refineries may be forced to export FO at a loss, further weakening Pakistan’s already fragile refining sector.

The OCAC also expressed concern that the levy could undermine recently renegotiated tariffs with FO-based independent power producers (IPPs), potentially rendering these plants inactive and increasing the government’s financial burden through capacity payments.

While acknowledging the interim relief provided by the Special Investment Facilitation Council (SIFC) through the Inland Freight Equalization Margin (IFEM) mechanism, the OCAC stressed that this is only a temporary fix.

The council urged the government to restore the taxable status of currently exempt petroleum products such as petrol, diesel, kerosene, and light diesel oil as a more sustainable solution.

The OCAC concluded its statement with a call for urgent dialogue and policy reversal.

“We strongly urge SIFC to intervene and recommend the withdrawal of the PL & CSL on FO. This will help restore policy consistency, support critical sectors of the economy, and uphold the principles of fair and sustainable economic development.”

The council reaffirmed its commitment to constructive engagement and requested an urgent meeting with government stakeholders to address the crisis in the national interest.