IPPs warn govt: FO levies could raise generation costs
In letters sent to the Petroleum Division and other stakeholders ahead of the 2025–26 federal budget, both Hub Power Company (Hubco) and the IPPs Advisory Council (IPPAC) expressed serious concerns over the planned imposition of a Carbon Levy (CL) and Petroleum Levy (PL) on furnace oil.
According to the draft Finance Bill 2025–26, a PL of Rs. 77 per litre (Rs. 82,077 per metric ton) and a CL of Rs. 2.5 per litre (Rs. 2,665 per metric ton) will be enforced starting July 1, 2025.
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Hubco's Chief Financial Officer noted that this would raise furnace oil prices by Rs. 84,742 per metric ton—making it less competitive compared to other fuels used in power generation.
The CFO emphasized that while cheaper sources of electricity are available, FO-based plants are still needed during summer peaks due to their quick start-up capability. He warned that the added levies would lead to higher electricity tariffs, undermining the government's recent efforts to cut costs by renegotiating Power Purchase Agreements (PPAs) with several IPPs.
'Furnace oil makes up 20–25% of local refinery output,' he said. 'If consumption drops due to higher prices, it could cause storage issues at refineries and worsen the already critical circular debt situation. Moreover, the expected revenue from these levies and related sales tax collections may not materialize.'
Hubco urged the Ministry of Energy to reconsider the move, cautioning that it could intensify the energy crisis and negatively affect the economy.
IPPAC echoed these concerns, saying the decision contradicts the government's stated support for domestic industry. It warned that higher FO costs would drive up industrial production expenses and reduce utilization of FO-based power plants.
The council noted that recently renegotiated tariffs aimed at lowering electricity costs would be rendered ineffective by the new levies. 'These price hikes will likely push FO-based IPPs down the merit order, potentially making them inactive,' IPPAC stated.
It also predicted that the levies would worsen the circular debt issue and reduce government revenues due to falling furnace oil sales and lower sales tax collection.
Copyright Business Recorder, 2025
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