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Refineries warn of shutdowns as new furnace oil levies threaten viability

ISLAMABAD – The Oil Companies Advisory Council (OCAC) has warned that proposed carbon and petroleum levies on furnace oil could force local refineries to shut down due to soaring operational costs. OCAC Chairman Adil Khattak cautioned that these levies might increase furnace oil prices by more than 80%, making operations financially unsustainable for many refineries.

The government plans to introduce a combined Rs79.5 per litre levy—Rs77 for petroleum and Rs2.5 for carbon—starting July 1, 2025, under the IMF’s Resilience and Sustainability Facility. This move could raise furnace oil prices by Rs85,000 per ton, pushing the total cost to nearly Rs235,000 per ton, with projections reaching Rs250,000 if global oil prices stay above $75 per barrel.

Khattak expressed concern over a disconnect between the power and petroleum sectors, suggesting either a lack of coordination or influence from fuel import lobbies. He emphasized that furnace oil is still essential for power generation and industrial use, and these levies could disrupt supply chains, especially for shipping firms and independent power producers (IPPs).

Over the last decade, furnace oil demand in Pakistan has dropped sharply from 9.2 million tons to under 2 million tons, largely due to a shift toward coal and LNG in power production. Today, furnace oil accounts for only 1.5% of the energy mix, and consumption continues to fall, averaging a 40% annual decline.

Despite falling demand, local refineries still produce around 2.5 million tons annually, with roughly 1.5 million tons exported. While oil marketing companies may remain unaffected, refineries could face severe revenue loss. Furnace oil contributes about 24% to their production mix, and export markets offer lower returns, often at a $5 per barrel discount, which could slash gross revenue margins by up to 12%.

With the levies expected to generate Rs75 billion in revenue for the government in FY 2024-25, industry experts argue that the economic impact on refineries must be weighed carefully. Without urgent revisions, the energy sector may face a new crisis.

Filed Under: Business Tagged With: carbon and petroleum levies on furnace oil, Latest, OCAC Chairman Adil Khattak, Oil Companies Advisory Council (OCAC), Refineries warn of shutdowns as new furnace oil levies threaten viability

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