Staff Report
ISLAMABAD: The government has approved a policy framework allowing guaranteed dollar-based returns on foreign investment in the $300 million Machike–Thallian–Tarujabba White Oil Pipeline project, a joint venture of Azerbaijan’s SOCAR, Pakistan State Oil (PSO), and the Frontier Works Organisation (FWO).
The Economic Coordination Committee (ECC) endorsed the framework after a prolonged debate, despite strong reservations from the finance and power ministries, which cautioned that such incentives could replicate the costly liabilities of Independent Power Producers (IPPs).
The Petroleum Division argued that foreign participation hinged on these assurances, with SOCAR insisting on a “ship-or-pay” model requiring payment on the pipeline’s full capacity of 7–8 million tonnes annually, regardless of actual throughput.
To limit exposure, the ECC decided that dollarised returns will apply only to the foreign-funded portion of the project, while locally financed components will not qualify. The Finance Ministry had also proposed extending the repayment period to ease early tariff pressures, but this was not adopted.
The ECC described the pipeline as a “strategic project” aimed at attracting more overseas investment into Pakistan’s oil and gas infrastructure. At present, about 70% of petroleum products are transported by road, 28% via the existing Karachi–Machike pipeline, and only 2% by rail. The new 477-kilometre line is expected to shift a larger share to pipeline infrastructure, lowering transport costs and reducing road congestion.
Under the framework, the Oil and Gas Regulatory Authority (Ogra) will set tariffs in US dollars and designate the pipeline as the default mode of oil transport. Oil marketing companies will be obligated to commit minimum annual volumes, with shortfalls adjusted through the Inland Freight Equalisation Margin (IFEM).
Ogra has already approved a provisional tariff for the Machike–Thallian segment, while the Thallian–Tarujabba section remains under review.
