In a decisive move to curb fossil fuel consumption and bolster green financing, the Government of Pakistan will impose hefty Carbon and Petroleum Levies on furnace oil (FO) from July 1, 2025. Under the International Monetary Fund’s Resilience and Sustainability Financing (RSF) program, consumers will face an additional Rs 79.5 per litre—comprising a Rs 77 petroleum levy (PL) and a Rs 2.5 carbon levy (CL). At the same time, furnace oil prices will soar by approximately Rs 85,000 per tonne, pushing the market rate to around Rs 235,000 per tonne, a 57 percent surge.
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The dual objectives of this policy are to discourage excessive reliance on heavy fuel oil and to generate nearly Rs 75 billion in revenues earmarked for renewable energy projects. Government projections estimate furnace oil consumption will drop from 1.2 million tonnes in FY 2023–24 to 0.9 million tonnes in FY 2024–25, continuing a downward trend from a decade-high of 9.2 million tonnes. As coal and LNG have already replaced FO in power generation—reducing its share of the national energy mix to just 1.5 percent—the impact on grid electricity prices is expected to be limited.
Nonetheless, industry stakeholders warn of “severe consequences.” Adil Khattak, Chairman of the Oil Companies Advisory Council and CEO of Attock Refinery Limited, cautioned that refineries—which use FO for furnaces, boilers, and captive power—could face crippling operational costs. With internal consumption levies driving furnace oil prices up by over 80 percent, some refineries may be forced to curtail output or even suspend operations if margins evaporate.
Shipping firms, independent power producers, and other industrial users, which collectively account for 99 percent of FO demand, will also feel the pinch. Sherman Research predicts that these sectors will reserve furnace oil for emergency backup only, accelerating a long-overdue shift toward renewables. Listed conglomerates such as CHCC and KOHC—whose energy mixes include 15 percent and 28 percent FO respectively—could see annual earnings dip by 3–4 percent.
Oil marketing companies (OMCs) are relatively insulated, as FO comprises a minor slice of their revenue. Refineries, however, may be compelled to export surplus FO at discounted margins—current gross refining margins average USD 10 per barrel, and export discounts of USD 5 could slash margins by roughly 12 percent. Northern refineries, which incur higher shipping costs, stand to suffer most.
As the Petroleum Minister continues consultations with industry leaders, observers are watching closely to see whether further regulatory tweaks or relief measures will accompany the levy rollout. With international crude oil prices hovering above USD 75 per barrel, furnace oil rates could climb to Rs 250,000 per tonne, marking a 67 percent rise. For now, the government is betting that this aggressive pricing strategy will push Pakistan decisively toward a cleaner energy future
