In a move that has stirred debate, the government has cleared a plan to offer dollar-based guaranteed returns for the $300 million Machike-Thallian-Tarujabba White Oil Pipeline project.
The decision, taken by the Economic Coordination Committee (ECC), has raised eyebrows, particularly within the finance and power ministries, which had voiced serious reservations.
A Strategic Partnership with Azerbaijan
The 477-kilometer pipeline will be developed through a joint venture involving Azerbaijan’s state-owned company SOCAR, Pakistan State Oil (PSO), and the Frontier Works Organisation (FWO). Officials keep on describing that the project as a strategic investment from Azerbaijan, expected to strengthen bilateral ties while modernizing Pakistan’s oil transport infrastructure.
At the ECC meeting, Power Minister Sardar Awais Leghari warned against repeating past mistakes with Independent Power Producers (IPPs), where guaranteed dollar-based returns locked the government into heavy long-term payments. He urged a deeper review of the project’s costs and its internal rate of return (IRR).
The Finance Ministry echoed these concerns, suggesting that dollar-based returns should apply only if foreign investment is actually used. It also recommended stretching the payback period from four to seven years and adopting more realistic assumptions about borrowing costs.
ECC’s Final Decision
Despite these objections, the ECC sided with the Petroleum Division, which argued that altering the terms would discourage investment. To reassure stakeholders, the ECC ruled that dollar-based returns would be linked strictly to foreign financing. The Oil and Gas Regulatory Authority (Ogra) has already provisionally approved a dollar-denominated tariff and declared the pipeline the default mode of oil transport.
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Reducing Road Dependence
Currently, 70% of petroleum products in Pakistan are transported by road, with 28% through the existing Karachi-Machike pipeline and only 2 percent by rail. The new pipeline is expected to shift a greater share toward pipelines, lowering costs and minimizing inefficiencies.
Under the deal, Oil Marketing Companies (OMCs) will be required to commit to minimum pipeline volumes each year. If they fall short, the gap will be covered through the Inland Freight Equalisation Margin (IFEM) mechanism.
Critics caution that guaranteed returns, if tied to local financing, could Create more problem for Pakistan’s fragile economy. But supporters keep on arguing that the project is a rare chance to captivate foreign capital, improve energy security, and modernize an outdated fuel transport system.