Pakistan’s Frontier Works has sought to recover about $432 million invested in a proposed 437-kilometer white oil pipeline within four years through a guaranteed transportation tariff, a structure intended to secure the participation of Azerbaijan’s state oil company, SOCAR.
The Faisalabad to Peshawar pipeline would transport petrol and high-speed diesel from Gatti in Faisalabad through Thalian near Rawalpindi to Tarujabba near Peshawar. The proposed tariff would start at about $64 per tonne in 2029 and gradually fall to $14.5 per tonne by 2058 as capital costs are recovered and debt is repaid, reported Dawn.
Frontier Oil Company, a subsidiary of FWO, Pakistan State Oil and SOCAR, is developing the project. It has received backing from the Economic Coordination Committee and the federal cabinet, while the Oil and Gas Regulatory Authority is expected to approve the construction-stage tariff.
The project would include a 256 kilometer section from Faisalabad to Thalian with an initial capacity of about seven million tonnes per year, expandable to 10 million tonnes.
A further 172 kilometer section would connect Thalian with Tarujabba with capacity of five million tonnes, while a nine kilometer spur would connect Thalian to Faqirabad.
The proposed investment has raised concerns within the government over the four year payback period and guaranteed dollar based returns. The Finance Ministry had proposed extending the payback period to seven years to reduce the initial tariff burden, while the Power Ministry also questioned the investment assumptions. The ECC ultimately backed the project on strategic grounds.
SOCAR has sought a “ship or pay” arrangement under which payment would be made for committed pipeline capacity even if the full capacity is not used.
Under the proposed framework, oil marketing companies would commit minimum annual volumes, while any shortfall would be covered through the Inland Freight Equalization Margin.
About 70 percent of Pakistan’s petrol and diesel currently moves by road, while 28 percent is transported through the existing pipeline network and 2 percent by rail. The new pipeline is expected to increase the share transported through pipelines by around 10 percent, while reducing reliance on road tankers and improving fuel supply to northern Pakistan.
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