The federal government has approved a dollar-based guaranteed return for the transportation of petroleum products through the Machike-Thallian-Tarujabba White Oil Pipeline, a 477-kilometer project costing $300 million, despite strong objections from the ministries of finance and power.
The Economic Coordination Committee (ECC) of the Cabinet gave the green light to the White Oil Pipeline project, which will be executed under a government-to-government arrangement. The joint venture will include Azerbaijan’s state-owned oil firm SOCAR, Pakistan State Oil (PSO), and the Frontier Works Organisation (FWO).
The project has faced opposition from both the finance and power ministries. Power Minister Sardar Awais Leghari cautioned that offering guaranteed dollar-based returns could repeat costly mistakes made with Independent Power Producers (IPPs). He stressed the need for a detailed review of the internal rate of return (IRR) and cost structure before moving ahead.
The finance ministry also raised concerns, suggesting that dollar-based returns should apply only if foreign financing is used. It recommended extending the repayment period from four to seven years to reduce tariff pressure and called for more realistic assumptions regarding interest rates and the weighted average cost of capital (WACC).
Despite these objections, the ECC sided with the Petroleum Division, which maintained that altering terms would discourage foreign investment. SOCAR has also made its investment conditional on a “ship-or-pay” model, similar to “take-or-pay” agreements in the energy sector, requiring full payment for pipeline capacity regardless of actual use.
White Oil Pipeline Tariffs to Be Denominated in US Dollars
To partially address concerns, the ECC decided that dollar-based returns would apply only when foreign investment is involved. The Oil and Gas Regulatory Authority (Ogra) has declared the pipeline as the default mode of petroleum transport and permitted tariffs to be denominated in US dollars.
Currently, 70 percent of Pakistan’s petroleum products are transported by road, 28 percent through the Karachi-Machike pipeline, and just 2 percent by rail. The new White Oil Pipeline aims to modernize the country’s oil transportation system, reduce inefficiencies, and cut costs.
Oil Marketing Companies (OMCs) will be obligated to commit minimum annual volumes, with any shortfall adjusted through the Inland Freight Equalisation Margin (IFEM). If collective commitments fall short, the national IFEM mechanism will cover the gap.
The FWO has already filed a revised tariff petition for the Machike-Thallian section, which Ogra has accepted. A separate petition for the Thallian-Tarujabba section is pending review. Although Ogra has determined a provisional dollar-based tariff, the details remain undisclosed.
The Petroleum Division has framed the project as a strategic opportunity to attract foreign capital and improve oil transport infrastructure. Critics, however, argue that dollar-based guaranteed returns could add pressure on the economy, particularly if local financing is used.