OCAC petitions SIFC for intervention, expressing concerns over levy imposed on furnace oil
In a recent development, the Oil Companies Advisory Council (OCAC) has sought intervention from the Special Investment Facilitation Council (SIFC) over the government's decision to impose a petroleum levy (PL) of Rs82,077 per metric ton on furnace oil (FO), effective July 1, 2025.
The OCAC, led by chairman Adil Khattak, argues that the imposition of the PL and Climate Support Levy (CSL) on FO will have widespread and adverse financial repercussions across multiple sectors of businesses. According to Khattak, the revenue expected from the petroleum levy is going to be "a pipe dream" as the price increase will wipe off local sales.
The OCAC fears that the combined petroleum and carbon levies will "eat into industry finances," significantly increasing costs for businesses reliant on furnace oil. The levies are expected to substantially raise the price of furnace oil, potentially leading to a 67% increase if crude oil prices stay above $75 per barrel. This could result in a steep cost burden on industries still dependent on furnace oil, potentially hurting their competitiveness and profitability.
Moreover, the decline in furnace oil demand is already evident, with consumption falling sharply by 40% annually over the last three years. Furnace oil now accounts for only about 1.5% of power production, down from about 35% a decade ago. The council and market analysts expect that the industry will continue to use furnace oil only as emergency fuel while shifting to renewables and other fuels like coal and liquefied natural gas, to avoid the financial impact of such high levies.
The government expects to collect substantial revenue, about Rs75 billion from furnace oil consumption in FY25, which is likely to increase with the new levies, providing financial resources for sustainability initiatives. However, the OCAC is concerned that the steep levy may reduce or eliminate FO sales within the country, potentially decreasing associated sales tax revenues and undermining industrial competitiveness.
The OCAC refuses to endorse any future road map for downstream oil sector deregulation and urges the SIFC to intervene and recommend the withdrawal of the PL and CSL on FO. Khattak also stated that if industrial and power production is to be sacrificed to reduce greenhouse emissions, Thar coal might be the next target.
In a letter to the SIFC on July 1, 2025, the OCAC expressed deep concern and strong protest against the imposition of the petroleum levy on FO. The Bretton Woods Institutions, both IMF and World Bank, discourage the use of coal, which could potentially lead to further scrutiny of Thar coal resources.
President Zardari has given assent to the Finance Bill 2025, which includes the petroleum levy on FO. The refineries exporting furnace oil could face substantial losses due to increased logistics costs and discounted export prices.
In summary, the OCAC highlights the heavy financial strain and price inflation resulting from the Rs82,077 per metric ton petroleum levy on furnace oil. While this aligns with government and IMF policies to mobilize funds for climate action and reduce fossil fuel dependence, it may accelerate the decline in furnace oil demand and push industries toward alternative energy sources, with mixed economic implications in Pakistan.
- The OCAC, headed by chairman Adil Khattak, asserts that the imposition of the petroleum levy on furnace oil will have widespread and adverse financial repercussions across various industries, particularly businesses that rely on furnace oil.
- Concerned about the potential increase in costs for businesses, the OCAC argues that the combined impact of petroleum and carbon levies might potentially lead to a steep cost burden on industries still dependent on furnace oil, potentially hurting their competitiveness and profitability.
- The OCAC also points out that the revenue generated from the petroleum levy might decrease associated sales tax revenues, potentially undermining industrial competitiveness as a result of reduced or eliminated furnace oil sales within the country.
