The government has approved a dollar-based guaranteed return for a major Pipeline Project. This project involves the construction of a 477-kilometer oil pipeline called the Machike-Thallian-Tarujabba White Oil Pipeline. The project is estimated to cost $300 million and aims to improve the transportation of petroleum products across Pakistan.
The Pipeline Project will be carried out by a joint venture between Azerbaijan’s state-owned SOCAR, Pakistan State Oil (PSO), and the Frontier Works Organisation (FWO). The project is part of a government-to-government agreement and is expected to strengthen economic ties between Pakistan and Azerbaijan.
Despite the approval, the decision has sparked some concerns. The finance and power ministries raised objections about the dollar-based guaranteed returns. They argued that such returns should only apply to foreign investments and not to projects financed locally. The finance ministry also suggested extending the payback period from four to seven years to reduce the early tariff impact.
The Economic Coordination Committee (ECC) sided with the Petroleum Division, which said changing the terms could deter investors. The ECC approved the Pipeline Project to attract foreign investment and modernize Pakistan’s oil transport system.
Currently, 70% of petroleum products in Pakistan are transported by road, and only a small fraction moves through pipelines. This Pipeline Project aims to increase the use of pipelines, which are more efficient and cost-effective.
The Oil and Gas Regulatory Authority (Ogra) will allow transportation tariffs for this project to be set in US dollars. This move aligns with SOCAR’s demand for a “ship-or-pay” contract, which guarantees payment for the pipeline’s capacity regardless of usage.
In summary, the Pipeline Project is seen as a strategic effort to improve Pakistan’s energy infrastructure. However, concerns remain about the economic impact of guaranteed dollar returns, especially if local financing is involved.
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