The imposition of Levies on FO To Raise Price by Over 80%:OCAC Warns SIFC

Staff Report

Oil Companies Advisory Council (OCAC) has warned the Special Investment Facilitation Council (OCAC) that the imposition of Climate Support and Petroleum Levies on Furnace oil (FO) has become effective July 1, 2025 which will raise its price by more than 80% making many industries, shipping and IPPs unviable.

In a letter sent to SIFC, Chairman OCAC Adil Khattak said that the Oil Companies Advisory Council (OCAC) and its member companies have expressed deep concern and strong protest regarding the imposition of a Petroleum Levy (PL) of Rs. 82,077 per metric ton on Furnace Oil (FO), effective July 1, 2025, through the Finance Act, 2025. This levy, in addition to the Climate Support Levy (CSL) of Rs. 2,665 per metric ton on FO, poses a serious threat to the overall business environment in the country.

While we acknowledge and sincerely appreciate the support extended by the Special Investment Facilitation Council (SIFC) in securing interim relief from the Government of Pakistan—through the recovery of inadmissible General Sales Tax (GST) on petroleum products via the Inland Freight Equalization Margin (IFEM) mechanism,: he said adding that they emphasize that this remains a temporary measure with limited scope. A sustainable solution requires the restoration of the taxable status of currently exempt petroleum products, i.e., Motor Spirit (MS), High-Speed Diesel (HSD), Kerosene, and Light Diesel Oil (LDO). SIFC’s continued support is pivotal until the full and permanent resolution of this matter.Refineries’ Margins Decline

He further said that the abrupt imposition of PL and CSL on FO without prior consultation with the industry reflects a complete disconnect from the economic and operational challenges currently being faced by the sector.

FO is a deregulated product, and its pricing is governed by market forces. It is mainly used to meet the energy needs of domestic industry. The imposition of such a substantial fiscal burden will have widespread and adverse financial repercussions across multiple business sectors, threatening their viability and long-term sustainability,” he maintained.

In this context, OCAC has raised different issues before the SIFC for consideration.

Local Demand Destruction

OCAC said that the imposition of PL and CSL would increase FO prices by approximately 80%, making its use economically unviable for key industries such as cement, shipping, textiles, glass, tyre manufacturing, large-scale industrial units, foundries, and other sectors reliant on boilers and furnaces (commonly referred to as general trade).

This drastic price increase will eliminate domestic FO demand and cause a sharp decline in industrial activity, potentially resulting in partial or complete operational shutdowns—especially where no viable fuel alternatives exist.

 Counterproductive to National Industrial Policy

This measure is in direct contradiction to the Government of Pakistan’s stated commitment to promoting domestic manufacturing. Rather than enhancing revenues, OCAC further said that it is likely to significantly reduce or eliminate FO sales within the country, thereby decreasing associated sales tax revenues and undermining industrial competitiveness.
It would also defeat the objective of collecting the envisaged revenue through the imposition of PL and CSL on FO.

Forced Exports at a Loss

In the absence of domestic demand, local refineries would be forced to export FO at considerable financial loss. This will further strain the already fragile financial condition of Pakistan’s refining sector and compromise its sustainability.

Undermining Recent IPP Agreements
The Government has recently renegotiated tariffs with FO-based Independent Power Producers (IPPs).

Imposing PL and CSL would substantially increase fuel costs, pushing these plants lower on the merit order and rendering them inactive.
This would nullify the gains from recent renegotiations while still obligating the Government to make capacity payments—effectively increasing the burden on national finances without any corresponding benefit.

Conclusion and Request for Action

In light of the above, OCAC has strongly urged SIFC to intervene and recommend the withdrawal of PL and 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.

We remain fully committed to engaging in constructive dialogue and are available for an urgent meeting to further discuss this matter in the national interest,” OCAC chairman added.