Heavy Levies Hit Refineries

New government levies on fuel oil are worsening losses for Pakistan’s outdated refineries, already struggling with collapsing domestic demand.

By M Ali

Heavy Levies have hit refineries output. Pakistan’s refining sector is facing deeper financial strain as new government-imposed levies on fuel oil (FO) make local sales increasingly unviable. According to a report by Optimus Capital Management, the introduction of a Petroleum Development Levy (PDL) and Carbon Surcharge Levy (CSL) totaling PKR 82,000 per ton is expected to accelerate the shift toward loss-making exports. Refineries’ Margins Decline

The study warns that obsolete refining technology is locking the sector into producing around 23% FO throughput in fiscal year 2025, even though the fuel now contributes just 0.4% to domestic power generation — down from 7.4% in FY19.

Exports Surge as Local Sales Collapse

Data from NEPRA and OCAC show a sharp rise in FO exports, climbing from 0.02 million tons in FY20 to 1.44 million tons in FY25. Over the same period, local sales plunged from 4.04 million tons in FY22 to just 0.81 million tons in FY25.

The report notes that with the new levies in place, refineries will have little incentive to sell FO domestically, instead offloading excess volumes abroad at a financial loss.

Need for Modernization

Industry analysts stress that without immediate investment in upgrading plants to produce higher-value fuels like gasoline and diesel, Pakistan’s refineries will remain trapped in a cycle of low-margin output.

“These challenges underscore the urgent need for refinery upgrades across the energy sector,” Optimus Capital Management concluded.

The imposition of PKR 82,000 per ton in levies marks a critical turning point for the refining sector, forcing policymakers to confront the costs of delaying modernization. Without reform, the sector’s reliance on FO exports could continue to erode profitability and strain the broader economy.