Petroleum Levies Are Raising Electricity Costs, Industry Tells Nepra

Petroleum levies are raising electricity costs in Pakistan when the power system uses furnace oil and high-speed diesel, industry representatives told the National Electric Power Regulatory Authority, or Nepra.

At a public hearing on a proposed fuel cost adjustment, business representatives said levies on furnace oil and diesel can add about Rs. 10 per unit to the cost of electricity generated from these fuels.

The claim is not a final Nepra finding. It is an industry position raised during the hearing. However, power-sector officials agreed that petroleum levies on these fuels have a substantial effect on generation costs.

The issue matters because Pakistan turns to expensive liquid fuels when lower-cost sources are constrained. If the system uses more furnace oil or diesel, higher fuel costs can be passed to eligible consumers through the monthly fuel cost adjustment, or FCA.

How Petroleum Levies Raise Electricity Costs

Petroleum levies are government charges added to selected petroleum products.

For power generation, the most relevant products are furnace oil and high-speed diesel. Both fuels can be used by thermal power plants when other sources are unavailable or insufficient.

Industry representatives told Nepra that the levy on furnace oil was about Rs. 76,000 per tonne. They said the levy on high-speed diesel was about Rs. 80 per litre.

These charges raise the price that a power producer pays for fuel. When a plant burns more expensive fuel, its per-unit generation cost rises.

The higher cost can then affect the average fuel cost of the national power mix. If the final monthly cost is above the reference fuel cost used in the tariff, CPPA can seek an FCA from Nepra.

This is why petroleum levies are raising electricity costs during periods of greater reliance on oil-based generation.

The Rs. 10 Per Unit Claim Explained

Industry representatives said petroleum levies were adding around Rs. 10 per unit to electricity generation costs.

This should be understood carefully.

The claim refers to the effect of levies on electricity produced from expensive furnace oil and diesel generation. It does not mean that every unit of electricity sold to every household automatically includes an extra Rs. 10 charge.

Pakistan’s electricity is generated from a mix of sources. These include hydropower, nuclear energy, local and imported coal, domestic gas, imported LNG, wind, solar, furnace oil and diesel.

Each source has a different cost. A higher cost at a furnace-oil or diesel plant affects the overall fuel bill only to the extent that the system uses that plant.

The impact on the final FCA depends on several factors:

• How much electricity comes from furnace oil and diesel.
• The price of those fuels.
• The size of the petroleum levy.
• The availability of hydropower, nuclear power, gas, LNG and coal.
• Total electricity generation during the month.
• Nepra’s review of CPPA’s data.

Therefore, the Rs. 10 per unit figure is an estimate presented by industry representatives. It is not a uniform national tariff increase.

Why Pakistan Uses Expensive Liquid Fuels

Furnace oil and high-speed diesel are generally among the costlier options for electricity generation.

Pakistan may use them when demand is high or when cheaper generation sources are constrained. This can happen if hydropower output falls, gas supplies are limited, LNG is unavailable or other power plants are not operating at expected levels.

During the September fuel-cost hearing, power-sector entities said furnace oil- and diesel-based generation accounted for 3.6% of total generation.

That share may seem small. However, diesel and furnace oil can have a high per-unit cost. Even a limited share can increase the average fuel cost when the gap between those fuels and lower-cost sources is wide.

CPPA data presented at the hearing showed that high-speed diesel generated 213 gigawatt-hours, or GWh, in September. This was around 1.6% of total grid supply.

The reported generation cost for high-speed diesel was Rs. 62.14 per unit. Furnace-oil generation stood at 263GWh, with a reported generation cost of Rs. 44.86 per unit.

These figures show why fuel selection matters. The system does not need to use large volumes of an expensive fuel for it to influence the final cost.

Petroleum Levies and the September FCA Request

The hearing took place as CPPA sought a Rs. 2.5624 per unit FCA for electricity consumed in September.

CPPA said actual fuel cost was Rs. 10.022 per unit, compared with a reference fuel cost of Rs. 7.4596 per unit. The difference created the proposed adjustment of Rs. 2.5624 per unit.

If approved in full, the request could recover about Rs. 32.7 billion from consumers through eligible November bills.

This is a proposed adjustment, not a final tariff decision.

Nepra has reserved its decision after hearing the views of CPPA, power-sector entities and consumer representatives. The regulator may approve, revise or reject parts of the request based on its review.

CPPA said the net month-to-month effect on consumer bills could be lower because an earlier positive FCA would expire. However, the final impact will depend on Nepra’s order and the applicable consumer category.

Industry Wants Levies Reduced or Removed

Industrial representatives urged the government to reduce or remove petroleum levies on furnace oil and diesel used for electricity generation.

They argued that this could lower the cost of producing electricity during periods when the power system must use those fuels.

They estimated that removing the levies could reduce generation costs from around Rs. 62 per unit to between Rs. 44 and Rs. 50 per unit. This estimate was presented during the hearing and has not been adopted as an official tariff calculation.

The industry also argued that the levy can increase the government’s subsidy burden. In its view, the government collects revenue through the levy but may later need to support consumers facing higher electricity costs.

This argument reflects a policy trade-off. The levy raises government revenue. Removing or reducing it could lower fuel costs for power producers. Yet it could also reduce public revenue unless the government finds another way to offset the loss.

Power Division Acknowledges the Cost Impact

Power Planning and Monitoring Company chief financial officer Naveed Qaiser agreed at the hearing that petroleum levies on diesel and furnace oil had a substantial effect on power-generation costs.

He said the power division had raised the matter at relevant forums and encouraged industry representatives to continue highlighting it to senior government officials.

Qaiser also said lower electricity tariffs remained a policy priority, particularly for industry. He pointed to earlier tariff reductions of around Rs. 10 per unit for consumers generally and up to Rs. 18 per unit for industry.

Those earlier reductions do not eliminate the effect of future FCAs. Monthly fuel costs can still increase or decrease depending on the fuel mix used in a given month.

This is why petroleum levies are raising electricity costs even when other tariff-relief measures have been introduced.

Why FCA Data Transparency Matters

The hearing also raised concerns about the quality and consistency of power-sector data.

Nepra officials and industry representatives questioned differences in the information supplied by the Central Power Purchasing Agency, Power Planning and Monitoring Company and Independent System and Market Operator.

Data quality matters because FCAs are calculated from reported fuel costs, generation volumes, dispatch patterns and electricity delivered to distribution companies.

If the data is incomplete, delayed or inconsistent, it becomes difficult for Nepra and consumers to assess whether the proposed charge is justified.

Nepra has said it will allow only prudent costs to be passed on to consumers. This principle is important for all fuel sources, including imported coal, LNG, furnace oil and diesel.

The regulator’s final FCA decision should provide clearer information on the approved fuel costs and the rate that will be reflected in bills.

What This Means for Consumers

Consumers should not assume that petroleum levies will immediately add Rs. 10 to every unit on their bill.

The immediate issue is the proposed September FCA of Rs. 2.5624 per unit. This request remains subject to Nepra approval.

The wider issue is that petroleum levies can raise the cost of oil-based generation. When the power system uses more furnace oil or diesel, those costs can contribute to a higher monthly FCA.

Consumers can check their bills for a separate fuel price adjustment or fuel charges adjustment line. This item is different from the base tariff, taxes, fixed charges and quarterly tariff adjustments.

They should also watch for Nepra’s written decision. The final notification will confirm the rate, billing month and consumer categories that are included or exempt.

The Bottom Line

Petroleum levies are raising electricity costs when Pakistan relies on furnace oil and high-speed diesel for power generation, industry representatives told Nepra.

The claim that levies add about Rs. 10 per unit applies to the generation cost of electricity produced from these fuels. It is not a confirmed Rs. 10 increase for every electricity unit sold nationwide.

The issue has become more important because CPPA is seeking a Rs. 2.5624 per unit September FCA. Nepra’s final decision will determine the charge that eligible consumers may see in their bills.