• $432m Pak-Azerbaijan pipeline to include SOCAR, FWO and PSO • Public hearing set for March 2 on payback, transport-cost impact • ECC earlier cleared project at $300m; ministries objected to dollar-based returns ISLAMABAD: Amid alerts already raised by two key federal ministries, the Oil and Gas Regulatory Authority (Ogra) has invited expert and public opinion on a rather quick and upfront four-year payback period for a $432 million government-to-government inve­stment bet­ween state-owned entities of Pakistan and Azerbaijan in the oil sector. Ogra has scheduled a public hearing for March 2 and sought comments from stakeholders, including the general public, on “whether the proposed payback period of four years is justified” and whether the project would affect regional transportation costs compared to existing road movement. The project has to mostly use local resources and dollar-based returns to cover full investment in four years, which has already been objected to by the Ministry of Finance. The proposal involves a 20-inch, 256-kilometre pipeline from Faisalabad to Thallian (Section I) near Islamabad to carry about seven million tonnes per annum (MTPA), extendable to 10 MTPA. It would then convert to a 12-inch line for 172km to Tarujabba near Peshawar (Section II) with a capacity of five MTPA, and an eight-inch, 9km line from Thallian to Faqirabad (Section III). The cost of Section I has been put at $320m, followed by $94m for Section II and $17.5m for Section III. According to Ogra, the project life is 30 years. The regulator has also sought public input on whether the claimed throughput volumes are fair and justified, whether the proposed capacities for the three pipeline sections can handle the intended volumes over the project life, and whether the proposed storage capacity — 60,000 tonnes each at Faisalabad and Thallian and 50,000 tonnes at Tarujabba — is appropriate for the projected throughput. The project cost cleared by the Economic Coordination Committee (ECC) of the cabinet five months ago was $300m, while two ministries had raised reservations over guaranteed returns in dollar terms on the transportation of petroleum products. The Machike-Thallian-Tarujabba white oil pipeline is to be developed on a government-to-government basis with Azerbaijan’s SOCAR, the Frontier Works Organisation (FWO) and Pakistan State Oil through a joint project company. The project, being pursued as a “strategic investment” from Azerbaijan, has long been pushed by the FWO through local resources. The ECC had “approved the terms and conditions” proposed by the Petroleum Division to enable the launch of this strategic project, which was expected to strengthen bilateral friendship, trade and investment ties between Pakistan and Azerbaijan by the end of August 2025. Power Minister Awais Leghari had cautioned against guaranteed return in dollar terms, saying the government should have learnt lesson from the experience of independent power producers (IPPs). He advocated that “all aspects of the investment proposal should be checked thoroughly for cost and internal rate of return (IRR), keeping in view the instance of independent power producers”, according to official minutes of the meeting. SOCAR had set a “ship or pay” condition for investment in the project on the pattern of “take or pay” in power purchase agreements with independent power producers that required full payment for the pipeline capacity (about 7-8 MPTA) even if petroleum products are unable to be moved for some reason. Moreover, the Ministry of Finance raised questions over the upfront payback period and noted that “dollarised return was being considered only in the context of foreign investment and should not be applicable in the event that foreign investment does not materialise”. There was a view that returns being secured for foreign investment could not be allowed on local investment, and payback should be of a longer term. The Ministry of Finance also demanded rationalising the interest rate assumptions, a more rational weighted average cost of capital (WACC), and an increase in payback period to seven years instead of four to avoid a higher tariff impact at the early stages of the project. It also wanted the Petroleum Division to finalise the technical details relating to inland freight equalisation margin and declaration of default mode of transport, instead of Ogra, considering the peculiar needs of the sector. However, the Petroleum Division argues that such amendments would make the key project unattractive. Therefore, the ECC has overruled the finance ministry’s demand for rationalising payouts and containing other liabilities as well as the power minister’s views and “observed that the project would open new vistas for future investment and hence, must be seen in a larger strategic perspective and be understood as an investment opportunity”, according to the official record. The FWO had originally sought 14.6 per cent IRR and 25pc equity IRR. The ECC has, nevertheless, agreed to the cautions to the extent that “dollarised return would be applicable only in the event of foreign investment coming into the project”. At present, approximately 70pc of petrol and diesel is transported by road, whereas 28pc is being moved through an existing pipeline from Karachi to Machike and 2pc is carried by railway. A revised version also provided for guaranteed quantities for oil transportation, for which Ogra would allow a transportation tariff. The tariff will be in US dollars with optimal utilisation of pipeline capacity in “default mode of transportation”. Under this, all oil marketing companies would be bound to commit minimum annual pipeline volumes and shortfall would be covered against their inland freight equalisation margin. According to the agreed mechanism, Ogra will design a regulatory framework to ensure optimal utilisation of the pipeline by declaring it a default mode of transportation. Published in Dawn, February 23rd, 2026