KARACHI, Oct 23: The increase in furnace oil price by Rs1,000 per ton by marketing companies from October 16 will escalate the cost of cement by at least Rs3 per 50 kg bag.

Many cement makers have converted the clinker production to coal firing but they generate electricity with the help of furnace oil and the additional power generation cost will increase the cost of cement by at least Rs3 per bag, executive director, Lucky Cement Limited, Abdur Razzak Thaplawala told Dawn on Saturday.

He said those cement makers, who do not have their own power generation systems, they will have to pay higher electricity cost due to the fuel adjustment charges clause in their agreements with Water and Power Development Authority (Wapda).

The increase in furnace oil prices will have an adverse impact on the cost of production of various industries including power generation, he said.

A few days back, oil marketing companies had entered into an agreement with transporters for increasing the freight rates by Rs800 per ton which means that the effective price of transportation shot up by Rs1,800 per ton.

Fuel oil prices have been showing a rising trend in the domestic market. Since April, fuel oil prices have gone up by over Rs3,000 per tons, affecting its consumers like Wapda, IPPs and other industries. The government as a policy had not capped the price of fuel oil in view of rising international oil prices.

Rising dependence on thermal power generation has flared up demand of furnace oil in this fiscal following decline of water levels at the dams as a result of low monsoon rains. It means that hydel power generation will remain low in the current fiscal.

Analysts said that country's furnace oil demand is likely to enhance by over 20 per cent owing to increased dependence on thermal power generation in this fiscal.

Pakistan State Oil (PSO) has already geared up its efforts by importing over 500,000 tons of fuel oil in the last few months and it is expected to issue more tenders for import.

Fuel oil demand had declined by 47 per cent in 2003-2004 due to good monsoon rains and additional gas supply to power plants.

Indus River System Authority (IRSA) had also proposed substantial cut in water share to provinces due to insufficient rains in the current monsoon season.

Import of fuel oil may go up by over six million tons in 2004-2005 as against around four million tons in the previous fiscal. In the same period of last fiscal, Pakistan had not imported any quantity due to good monsoons and rising water level at dams.

By early January 2004, fuel oil had 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 plants. But thin rains and lowering dam's levels had revised the projections.

Earlier this year, Pakistan tried to re-enter the export of fuel oil business after over 20 years but the tender, issued by the Pakistan Refinery Limited (PRL) on January 14, 2004 for the export of 40,000 tons was cancelled due to rising demand of fuel oil from the power sector.