The Oil and Gas Regulatory Authority (Ogra) has invited expert and public opinion on a proposed dollarized return model for a $432 million Pak-Azerbaijan white oil pipeline project. The regulator has scheduled a public hearing for March 2 to gather views on the project’s financial structure, particularly the proposed four-year upfront payback period.
Ogra wants stakeholders to share input on whether such a short recovery period makes financial sense and whether it could increase transportation costs compared to existing road-based fuel movement.
Details of Pak-Azerbaijan White Oil Pipeline Project
The proposed pipeline will stretch across three sections:
• A 20-inch, 256km pipeline from Faisalabad to Thallian near Islamabad, with a capacity of seven million tonnes per annum (MTPA), extendable to 10 MTPA.
• A 12-inch, 172km extension from Thallian to Tarujabba near Peshawar, with five MTPA capacity.
• An 8-inch, 9km line connecting Thallian to Faqirabad.
Officials estimate Section I will cost $320 million, Section II $94 million, and Section III $17.5 million. The project life stands at 30 years.
Read more: Govt approves $300 million White Oil Pipeline with dollar-based guaranteed returns
The pipeline will operate as a joint venture between Azerbaijan’s SOCAR, Pakistan’s Frontier Works Organisation, Pakistan engineering organization” (FWO), and Pakistan State Oil (PSO). The government has promoted the initiative as a strategic investment to strengthen energy cooperation between Pakistan and Azerbaijan.
Concerns Over Four-Year Payback and Dollar-Based Tariff
However, the proposal has sparked debate inside the government. The Ministry of Finance raised objections to the four-year payback period and questioned the idea of offering dollarised returns. Officials argued that such guarantees usually apply to foreign investments and should not extend to local funding if foreign capital does not materialize.
The ministry also recommended increasing the payback period to seven years to prevent early-stage tariff pressure on consumers. It further asked for more realistic assumptions about interest rates and the weighted average cost of capital (WACC).
Meanwhile, Awais Leghari cautioned against repeating mistakes made with independent power producers (IPPs), where guaranteed dollar returns created long-term financial strain. He urged policymakers to carefully review the internal rate of return (IRR) before final approval.
Ship-or-Pay Condition and Transport Impact
SOCAR reportedly set a “ship-or-pay” condition. Under this model, oil marketing companies must pay for reserved pipeline capacity even if they fail to transport fuel. Additionally, regulators may declare the pipeline the default mode of transport, requiring companies to commit minimum annual volumes. Any shortfall would come from the inland freight equalization margin.
Currently, Pakistan transports about 70% of petrol and diesel by road, 28% through the Karachi-Machike pipeline, and 2% by rail. Supporters argue that the new pipeline will
- Minimize road congestion
- Lower accident risks
- Improve fuel supply efficiency
Critics, however, keep on giving warning that guaranteed dollar-based tariffs could raise consumer costs.
Despite reservations, the Economic Coordination Committee (ECC) has endorsed the project in principle. It clarified that dollarized returns is going to apply only if foreign investment flows into the venture.
Now, Ogra’s public hearing will play a crucial role. By gathering feedback, the regulator intends to strike a balance between attracting investment and protecting consumers from unnecessary financial burden.