Power Division Requests Cut on Diesel and Furnace Oil Levies

Power Division Requests Cut on Diesel and Furnace Oil Levies

BySalman Khan

Pakistan’s Power Division, alongside industrial stakeholders, has urged the federal government to reduce or eliminate petroleum levies on diesel and furnace oil used in electricity production. This move comes amid escalating generation costs caused by these taxes, which are exacerbating an already expensive thermal power sector.

Levies Significantly Increase Power Generation Expenses

Currently, petroleum levies impose hefty charges of around Rs. 80 per litre on high-speed diesel and approximately Rs. 76,000 per tonne on furnace oil. Industry representatives highlighted that these levies add nearly Rs. 10 per unit to electricity generation costs at plants fueled by these sources. Acknowledging this burden, Power Division officials noted the matter has been raised within relevant government forums as it considerably drives up production expenses.

Diesel and Furnace Oil Usage Surges in Power Mix

In September 2026, the share of diesel and furnace oil in the national electricity mix rose to approximately 3.6% due to limited availability of liquefied natural gas (LNG) and other supply constraints. High-speed diesel contributed about 213 gigawatt-hours (GWh), roughly 1.6% of overall supply, with an average cost of Rs. 62.14 per unit. Meanwhile, furnace oil accounted for 263 GWh at an average cost of Rs. 44.86 per unit. These figures reflect a growing dependence on relatively expensive fuels that further strain the power sector’s finances.

Fuel Cost Adjustment Proposal and Its Impact on Consumers

The Central Power Purchasing Agency (CPPA) has proposed a fuel cost adjustment (FCA) of Rs. 2.56 per unit for electricity consumed in September 2026. If approved by the National Electric Power Regulatory Authority (NEPRA), this adjustment would add roughly Rs. 32.76 billion to the sector’s fuel expenses and be reflected in consumer electricity bills starting November. However, CPPA officials anticipate the net increase for consumers will be closer to Rs. 1.45 per unit, due to the expiry of a prior positive adjustment in October.

The rise in generation costs, nearly 37.5% higher year-on-year in September, is mainly attributed to increased reliance on costly fuels and imported coal following a reduction in cheaper LNG supplies.

Implications for Pakistan’s Energy Sector and Consumers

While the current proposal focuses solely on the petroleum levies applied to fuel used in power generation, no immediate relief for diesel prices at the pump has been announced. Should the Power Division’s request be granted, the reduction or removal of levies could lessen electricity generation costs and eventually contribute to more stable power tariffs for both industrial users and household consumers.

This development is particularly significant for Pakistan as energy costs directly impact inflation, industrial productivity, and overall economic growth. Considering the country’s ongoing challenges in meeting electricity demand affordably, easing fuel levies may provide much-needed respite to consumers and businesses alike.

A government decision on this matter is awaited, as stakeholders continue to monitor how fiscal policies will adapt to balance revenue generation with energy affordability.

As Ayesha Ali, automotive and energy commentator, summarized, “Reducing these levies could substantially lower generation costs, offering relief amid rising power prices.”

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