KARACHI, Sept 4: Country's furnace oil demand is likely to enhance by 20 per cent because of increased dependence on thermal power generation in this fiscal year.

The water level at the dams has bottomed out because of low monsoon rains, which means that hydel power generation will remain low in the current fiscal.

Pakistan State Oil (PSO) has issued a tender on Saturday for the import of 165,000 tons for September-October period. This is the third tender issued by the PSO during first quarter of 2004-05.

An analyst at Invest Capital and Securities said that fuel oil demand had declined by 47 per cent in 2003-04 due to good monsoon rains and additional gas supply to power plants.

He said that Indus River System Authority (IRSA) has also proposed a 30 per cent cut in water share to provinces due to insufficient rains in the current monsoon season.

There is a possibility of 20 per cent increase in fuel oil demand during the current fiscal as lower rains have increased reliance on thermal power generation. He said PSO would benefit most due to its major share in fuel oil market.

A refinery official said that import of fuel oil may range 5.5-6.0 million tons in 2004-05 as against around four million tons in the previous fiscal.

Fuel oil prices have been showing a rising trend in the domestic market. Since April, fuel oil prices have gone up by over Rs2,000 per ton which may affect its consumers like Wapda, IPPs and other industries. The government has not capped the price of fuel oil in view of rising international oil prices because its consumers are not general public as compared to other oil product prices on which the government has maintained price freeze in order to offset the negative impact of rising global oil prices on the end-users.

By early January, fuel oil remained surplus since its main buyers like Wapda and other fuel oil dependent sources had switched over to natural gas. Pakistan had also not imported any fuel oil consignment during July-December 2003.

Import of fuel oil touched a high of 5.7 million tons (costing $826 million) in 1999-2000 and in 2002-2003, it was around 4.1 million tons ($708 million).

Analysts earlier this year had also projected that Pakistan was unlikely to import any more furnace oil in 2004 owing to shift from fuel oil to gas by Wapda, KESC and other power plants. But thin rains and lowering dam's levels had revised the projections.

Earlier this year, Pakistan's chances to re-enter the export of fuel oil business after over 20 years had also hit the snag following the cancellation of tender, issued by the Pakistan Refinery Limited (PRL) on January 14, 2004 for the export of 40,000 tons. PRL had to cancel the tender as the local demand from power sector picked up.