ISLAMABAD: Independent Power Producers (IPPs) have cautioned the government that proposed levies on furnace oil (FO) in the 2025–26 federal budget could sharply increase electricity generation costs and severely impact refinery operations.
In formal communications to the Petroleum Division, the Hub Power Company (Hubco) and the IPPs Advisory Council (IPPAC) raised alarms over the draft Finance Bill’s proposed imposition of a Rs77 per litre Petroleum Levy (PL) and a Rs2.5 per litre Carbon Levy (CL), effective July 1, 2025. Combined, these would raise FO prices by over Rs84,700 per metric ton.
Hubco’s Chief Financial Officer highlighted that while alternative fuels are more economical, FO-based plants remain essential for managing summer peak demand due to their rapid ramp-up capabilities. He warned the levies would push up electricity tariffs and undo the cost-cutting gains achieved through recently renegotiated Power Purchase Agreements (PPAs).
“Furnace oil accounts for 20–25% of local refinery output,” the CFO noted, cautioning that reduced demand could lead to excess inventory, disrupt refinery operations, and aggravate the circular debt crisis. He added that the projected fiscal gains from the levies may not materialize due to falling FO consumption.
IPPAC echoed these concerns, arguing that the proposed taxes conflict with the government’s commitment to support domestic industries. The council warned that increased FO costs would inflate industrial production expenses and make FO-based IPPs economically unviable, potentially pushing them down the merit order and out of operation.
Both Hubco and IPPAC urged the Ministry of Energy to reconsider the levies, warning they could further strain the energy sector and hinder economic recovery.
