- Oil industry warns new levies could hike furnace oil prices by 80%, harming industrial output.
- $6B refinery upgrade projects at risk due to unresolved tax issues.
- SIFC given a deadline to resolve deadlock or revise national policy.
Pakistan’s oil industry is raising serious concerns over recently introduced levies on furnace oil, warning that the combined impact of the petroleum and climate support charges—amounting to over Rs84,000 per tonne—could cripple key industrial sectors.
Beyond the immediate economic strain, the levies are complicating long-term investment strategies. A separate deadlock over sales tax exemptions introduced in the FY25 Finance Bill is threatening $6 billion in critical refinery upgrade projects.
Fiscal Pressures Threaten Pakistan’s Energy Sector and Industrial Backbone
The newly imposed petroleum and climate levies are part of a broader fiscal strategy to secure a $1.3 billion facility from the International Monetary Fund (IMF). However, industry stakeholders argue that the move was made without adequate consultation, sidelining the operational realities of sectors that depend on furnace oil. By significantly raising input costs, the levies could not only shrink domestic demand but also trigger forced exports of fuel at a loss, further eroding refinery profitability.
In the power sector, the implications are equally severe. Furnace oil-based independent power producers (IPPs) may face higher costs, pushing their operations lower in the power merit order and risking temporary shutdowns. This shift could result in increased capacity payments—costs the government must cover even if plants are idle—exacerbating fiscal pressure on public finances and undermining energy security during peak demand.
Meanwhile, the investment climate is becoming increasingly uncertain. Refinery CEOs have repeatedly asked for seven years of tax policy stability to ensure long-term capital commitments can proceed without risk of sudden regulatory changes. The ongoing sales tax dispute has put on hold government-backed refinery modernization plans, including a $1.6 billion incentive package designed to attract foreign and domestic capital into the energy sector.
While temporary relief measures like the Rs1.87/litre hike in the Inland Freight Equalisation Margin (IFEM) offer short-term breathing room, industry experts insist these are insufficient to offset mounting losses. Structural reforms—particularly restoring the taxable status of currently exempt fuels and clarifying long-term tax policy—are essential to unlock Pakistan’s refining potential and meet future energy demands sustainably.
Pakistan’s oil sector is caught between fiscal necessity and economic sustainability. Without swift and coordinated policy action, industrial output and critical investments risk severe setbacks.
“You can’t build a strong economy on unstable policies.” – Anonymous business maxim
