Staff Report
ISLAMABAD: The government has approved a framework allowing dollar-based guaranteed returns for foreign investment in the 477-kilometre Machike–Thallian–Tarujabba White Oil Pipeline, a $300 million project to be developed jointly by Azerbaijan’s SOCAR, Pakistan State Oil (PSO), and the Frontier Works Organisation (FWO).
The Economic Coordination Committee (ECC) cleared the plan despite reservations from the finance and power ministries, which had cautioned against repeating the costly experience of Independent Power Producers (IPPs). The ECC decided that dollarised returns will apply strictly in cases involving foreign investment, while local financing will not qualify.
The project is being positioned as a strategic investment from Azerbaijan under a government-to-government arrangement. SOCAR had made its participation conditional on a “ship-or-pay” model, requiring payment for the pipeline’s full capacity of 7–8 million tonnes annually regardless of actual throughput.
The Finance Ministry had warned against offering guaranteed dollar returns on domestically financed components and suggested extending the payback period to reduce early tariff pressures. Power Minister Awais Leghari also urged a detailed review of the internal rate of return (IRR) before approval.
However, the Petroleum Division argued that altering the terms would make the venture unattractive to foreign investors. Supporting its stance, the ECC termed the project a “strategic opportunity” to attract more overseas investment into Pakistan’s energy infrastructure.
Currently, about 70% of petroleum products are transported by road, 28% via the existing Karachi–Machike pipeline, and only 2% by rail. The new pipeline aims to shift a larger share to pipeline infrastructure, reducing inefficiencies and road transport costs.
Under the approved framework, the Oil and Gas Regulatory Authority (Ogra) will denominate transportation tariffs in US dollars and declare the pipeline the default mode of oil transport. Oil marketing companies will be required to commit to minimum annual volumes, with any shortfall adjusted through the Inland Freight Equalisation Margin (IFEM).
Ogra has already determined a provisional tariff for the Machike–Thallian section based on dollarised returns, while the petition for the Thallian–Tarujabba section is still under review.
