05-07-2025
- Business
- Business Recorder
FPCCI seeks withdrawal of Rs77/lit PL on FO
ISLAMABAD: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has urged Prime Minister Shehbaz Sharif to immediately withdraw the Petroleum Levy (PL) of Rs 77 per litre imposed on Furnace Oil (FO), effective July 1, 2025. The industry body warned that the decision could trigger mass industrial closures, layoffs, and a serious blow to exports.
In a formal letter to the Prime Minister, FPCCI highlighted the severe consequences of the newly introduced Petroleum Levy, along with an additional Carbon Levy (CL) of Rs 2.5 per litre under the Finance Bill 2025-26.
While acknowledging the government's broader fiscal and sustainability goals, FPCCI stated that the policy 'does not reflect economic ground realities' and poses a direct threat to the survival of Pakistan's industrial and export sectors.
PL imposition on furnace oil: OICCI urges authorities to engage with key stakeholders
According to FPCCI, the new levy has pushed the price of Furnace Oil beyond Rs 82,000 per metric ton—an over 80% increase. A mid-sized industrial unit consuming 20 metric tons of FO per day now faces an added cost burden of Rs 1.64 million per day or nearly Rs 50 million per month.
'For most industrial users, this is not a cost adjustment—it is a make-or-break moment,' FPCCI warned.
Many industrial firms had switched to FO-based captive power generation after gas-based production became economically unviable due to the Grid Transition Levy (GTL), while grid connectivity remained limited, especially in older industrial zones and semi-urban clusters.
'Grid extensions and sanctioned load enhancements typically take 3 to 5 years. These industries cannot switch overnight. Without gas or grid access, furnace oil is their only operational lifeline,' the letter stated.
Several major manufacturers and exporters had invested heavily in FO-based engines in recent years, based on policy stability. With FO now costing over Rs 185 per litre, captive generation costs have soared to Rs 48–52 per unit—well above grid rates.
'These firms cannot revert to gas or switch to the grid. Exports worth over $1.5 billion from these firms alone are now at direct risk, with cancelled orders, missed deadlines, and unviable pricing looming,' FPCCI warned. It noted that some companies have already begun shutdown procedures.
The letter also stressed that Furnace Oil is an unavoidable by-product of crude refining. If it becomes un-sellable domestically or unprofitable to export, refiners are forced to reduce operations—affecting the supply of petrol, diesel, and jet fuel.
'This has already occurred several times in the past 18 months. Refiners have had to export FO at a loss just to keep plants running,' FPCCI noted, warning of a potential halt in domestic refining operations.
FO-based thermal power plants, which are essential for emergency ramp-ups during peak demand and grid instability, will also be affected. With FO becoming unaffordable, power producers may stop stockpiling it—raising the risk of load-shedding and grid instability during summer.
Thousands of oil tankers that rely on FO for transport face an existential crisis, with potential spillover into broader fuel logistics and employment sectors.
Cement producers, who use FO for kiln operations or emergency power, could see energy costs rise by over Rs 300 million per year for a 2,000 MT/day kiln. Glass manufacturers that run high-temperature furnaces on FO would also be severely affected, as energy constitutes up to 30 percent of their total cost.
'Furnace stoppages destroy molten batches and damage equipment. Temporary shutdowns in this sector are economically ruinous,' FPCCI said, adding that thousands of skilled and semi-skilled workers could lose their jobs.
After a comprehensive review by its Energy Advisory Committee, FPCCI concluded that the policy would not generate revenue, as the product it seeks to tax—Furnace Oil—would effectively vanish from the market due to its unviable economics.
'This is not a tax problem. It is an economic survival issue,' FPCCI emphasized.
It proposed the following three corrective measures: (i) immediate withdrawal of the Rs 77/litre Petroleum Levy on Furnace Oil; (ii) uniform application of a nominal Carbon Levy of Rs 2.5/litre, aligned with rates on petrol and diesel; and (iii) a phased approach, gradually increasing the levy to Rs 5/litre only after viable alternatives (gas or grid) become available to industrial users.
Copyright Business Recorder, 2025
