Stakeholders raise concerns over high dollar returns on Faisalabad-Peshawar oil pipeline

Key Takeaways

Various stakeholders questioned the unusually lucrative dollar-based returns proposed for a $432 million oil pipeline.
The project aims to recover investment in four years, raising eyebrows over the high returns.
Participants urged rationalisation of incentives to avoid creating a new 'super IPP'.

Stakeholders have raised serious objections to the unusually high dollar-based guaranteed returns proposed for a $432 million oil pipeline from Faisalabad to Peshawar, according to a public hearing held by the Oil and Gas Regulatory Authority (Ogra).

The project, which spans 437km, is intended to recover its investment in four years to ensure participation of Azerbaijan’s State Oil Company (Socar).

Participants at the hearing, including Ogra Vice Chairman Shahzad Iqbal, generally supported the pipeline project due to its advantages over road transportation of fuel but argued that the terms being sought by the investors could undermine those benefits.

Under the tariff petition, transportation of petroleum products from Faisalabad to Thalian near Rawalpindi and onwards to Tarujabba near Peshawar would cost around $64 per tonne in the first year, targeted to be 2029, before gradually declining to $14.5 per tonne by 2058, the final year of the 30-year tariff period.

FWO representatives argued that the project should be viewed in a long-term context, noting that the initial tariff could be higher than road transportation costs in the early years but would taper off subsequently.

Some intervenors questioned the proposed minimum throughput guarantees and projections of higher fuel demand amid an ongoing energy transition driven partly by expensive petroleum products.

One commentator described the proposed structure as a 'super IPP' given its bulky demands and said there was no comparable precedent.

Independent power producers (IPPs) had at least been set up under a pre-approved power policy that did not provide special treatment to individual investors, whereas in the pipeline project there was no such policy and investors were seeking unusually high returns.

Arif Bilwani from Karachi urged the authority to act and behave independently as a regulator, asking, 'Who is behind this? Who is exerting pressure on Ogra?'

Ogra Senior Executive Director Misbah Yaqoob appreciated the stakeholders’ feedback and said the regulator would examine whether dollar-based returns were justified and, if so, to what extent.

She also said Ogra would consider rationalising the 'ship or pay' allowance for a specified period instead of the entire life of the project and ensure that the pipeline tariff did not exceed the inland freight equalisation margin currently used to maintain uniform petroleum pricing.