The Oil and Gas Regulatory Authority (Ogra) has invited public and expert feedback on a proposed $432 million oil pipeline project with Azerbaijan, which aims for a rapid four-year payback period, a timeline that has already drawn scrutiny from key federal ministries.
Ogra announced that a public hearing will be held on March 2 to gather opinions on whether the proposed payback period is justified and how the project might impact regional transportation costs compared with existing road networks.
The Machike-Thallian-Tarujabba pipeline is planned in three sections: a 20-inch, 256-kilometer line from Faisalabad to Thallian near Islamabad with a capacity of seven million tonnes per year (MTPA), extendable to 10 MTPA; a 12-inch, 172-kilometer section to Tarujabba near Peshawar carrying five MTPA; and an eight-inch, 9-kilometer spur from Thallian to Faqirabad.
Total costs are estimated at $431.5 million, with Section I at $320 million, Section II at $94 million, and Section III at $17.5 million. The project is expected to have a 30-year lifespan.
Ogra is also seeking public input on projected throughput volumes, storage capacity at Faisalabad, Thallian, and Tarujabba, and whether the three sections can handle the intended volumes over the pipeline’s life.
The project, to be executed jointly by Pakistan State Oil, the Frontier Works Organisation (FWO), and Azerbaijan’s SOCAR, was cleared by the Economic Coordination Committee (ECC) five months ago, though both the Finance Ministry and the Power Ministry have raised objections.
Finance officials questioned the upfront four-year payback and the proposed dollar-based returns, arguing that foreign investment terms should not dictate local funding arrangements. They also suggested extending the payback to seven years to limit tariff impacts and revising interest rate assumptions.
Power Minister Awais Leghari cautioned against guaranteed returns in dollar terms, citing lessons from Pakistan’s independent power producer (IPP) experience, and recommended a thorough review of project costs and internal rates of return.
Despite these concerns, the ECC emphasized the project’s strategic importance and potential to boost bilateral trade and investment with Azerbaijan, while stipulating that dollarized returns would apply only if foreign investment materializes. SOCAR has proposed a “ship or pay” clause, similar to “take or pay” agreements in the power sector, which would guarantee full payment for pipeline capacity regardless of actual utilization.
Currently, around 70% of Pakistan’s petrol and diesel is transported by road, with 28% moved through the existing Karachi-Machike pipeline and 2% by rail. The new pipeline is expected to optimize transportation, with Ogra designing a regulatory framework to declare it the “default mode” of petroleum product movement. Oil marketing companies would be required to commit to minimum annual volumes, with shortfalls offset through inland freight equalization margins.
Stay Connected with ProPakistani
Get the latest business news, market insights, and economic updates wherever you prefer.
Add ProPakistani to Preferred Sources and see more of our stories in Google Search and Top Stories.
