Stakeholders have demanded a major rationalisation of the dollar-based guaranteed returns proposed for a $432 million oil pipeline from Faisalabad to Peshawar, warning that the incentives could create a new “super IPP.”
The objections came on Thursday at a public hearing held by the Oil and Gas Regulatory Authority (OGRA) on a petition by the Frontier Works Organisation (FWO) for a transportation tariff for the 437-kilometre pipeline. OGRA Vice Chairman Shahzad Iqbal presided over the hearing.
The petition proposes recovering the investment within four years to secure the participation of Azerbaijan’s State Oil Company (Socar). Neither the petitioners nor OGRA responded when asked whether there was any precedent for a private investor in a public project recovering its entire investment in four years.
Participants generally supported the project because of its advantages over road transport of fuel. However, they argued that the terms sought by investors could undermine those benefits.
Under the proposed tariff, transporting petroleum products from Faisalabad to Thalian near Rawalpindi, and onwards to Tarujabba near Peshawar, would cost about $64 per tonne in 2029, the first year. The rate would decline gradually to $14.5 per tonne by 2058, the final year of the 30-year tariff period.
FWO representatives said the project should be assessed over the long term rather than on the initial tariff, which may exceed road transport costs in the early years but would fall later.
Some intervenors also questioned the proposed minimum throughput guarantees and the projections of higher fuel demand, given the ongoing energy transition, which is partly driven by costly petroleum products.
One participant described the proposed structure as a “super IPP,” saying there was no comparable precedent. He said independent power producers had at least been established under a pre-approved policy that gave no special treatment to individual investors, while no such policy exists for the pipeline and investors are seeking unusually high returns.
Arif Bilwani from Karachi asked who was behind the proposal and who was pressuring OGRA, and urged the authority to act independently as a regulator.
OGRA Senior Executive Director Misbah Yaqoob thanked stakeholders for their feedback. She said the regulator would examine whether dollar-based returns were justified and, if so, to what extent.
She added that OGRA would also consider limiting the “ship or pay” allowance to a specified period instead of the project’s entire life, and would ensure the pipeline tariff did not exceed the inland freight equalisation margin used to maintain uniform petroleum prices.
