ISLAMABAD: The Economic Coordination Committee (ECC) of the Cabinet has constituted an inter-ministerial committee to negotiate the terms of the Implementation Agreement(IA) , including the Guarantee Agreement and Letter of Agreement with Asia Petroleum Limited (APL) , and will also decide on the question of ownership of fuel and the alternative use of the pipeline.
Presided over by Finance Minister, Muhammad Aurangzeb, Petroleum Division informed that
APL was setup with World Bank’s assistance in 1994 pipeline system with throughput capacity of 3.2 million MT per annum. The pipeline as a Public Limited Company which owns and operates 82 km long, 14-inch diameter was commissioned to supply furnace oil to HUBCO Power Plant. APL is a Joint Venture of Pakistan State Oil Company Ltd (PSO 49% shares), Infraavest Limited, Hong Kong (26% shares), Independent Petroleum Group (IPG), Kuwait (12.5% shares) and VECO International Inc (VECO), USA (12.5% shares).
An Implementation Agreement (IA) between APL and GoP was executed on June 28, 2003 which is effective from November 2, 1996 up to March 30, 2027. Under this IA, GOP guarantees minimum throughput of 1.5 million M Ton per annum at the rate of $ 12.13/MT for the first 19 years and thereafter $ 8.49/MT. The list of agreements that were part of APL Security package.
National Task Force-Implementation of Reforms (Power Division) in its meeting October 28, 2024, which was inter alia attended by MD PSO, CEO APL and DG (Oil) (Annex-III), recommended the following: (i) GoP to unilaterally terminate the Implementation Agreement (IA) with APL with effect from October 1, 2024 ;(ii) Ministry of Finance to unilaterally stop payment to APL (required as per agreement) with effect from October 1, 2024 ; and (iii) PSO in conjunction with Ministry of Petroleum and APL to evaluate and develop a plan for optimum utilization of the redundant pipeline in earliest time frame.
Accordingly, Power Division, Law and Justice Division and Finance Division were consulted on payment matter and future course of action. PSO was also consulted for optimum utilization of redundant pipeline. Power Division, in its letter of February 24, 2025 informed that under the Negotiated Settlement Agreement (NSA) between GoP, CPPA-G and HUBCO, the parties have terminated the Power Purchase Agreement (PPA), Implementation Agreement (IA) and the Guarantee with effect from October 1, 2024. Moreover, HUBCO, in its letter of October 24, 2024 informed PSO that Fuel Supply Agreement between PSO and HUBCO has been terminated with effect from October 1, 2024 in light of NTF recommendations resultantly, APL pipeline has become redundant millions of dollar worth of HFO remains in the pipeline which is being maintained at a particular temperature.
In response to a reference sent by Petroleum Division, Law Division vide letter of June 2, 2025 informed that GoP entered into Negotiation Settlement Agreement (NSA) with CPPA-G and HUBCO whereas the agreements related to APL security package are between GoP, APL, HUBCO and PSO which cannot be terminated unilaterally without the tacit approval of all stakeholders. Law and Justice Division advised to secure the consent of all parties involved in the said agreements in line with the NTF recommendations to ensure that NSA is implemented in letter and spirit without legal complications. Finance Division of February 20, 2025 conveyed that it assumes there would be no further proposals for release of the funds as the IA between GoP and APL has been terminated with effect from October 1, 2024. Whereas PSO vide letter dated 30th June 2025 informed that PSO and APL have developed a business plan and have initiated the process of developing commercial feasibility of the Oil Import Terminal (OIT) project by awarding the contract for conducting a Techno-Commercial Study based on available data to a well reputed company on 9th May, 2025 through a competitive bidding process.
In view of above, following three options may be considered; Option 1 – Continuation of APL IA till March 31, 2027. It will require; (i) settlement of outstanding receivables (Late Payment Charges & Exchange Rate Differential) till September 30, 2024 amounting to PKR 2.8 billion ($ 10 million) ;(ii) continuation of quarterly principal payments till March 2027 amounting to $ 31.8 million (US$ 3.2 million per quarter) ;(iii) applicable LPC, ERD and tax adjustments as per agreement on delayed payments post September 2024.
Option 2 – Immediate termination under Article XIX & XX of APL IA ;(i) immediate termination and payment of US$ 32.254 million by GoP (termination compensation) effective October 1, 2024 ;(ii) in addition, GOP remain liable for payment of outstanding receivables of $ 10 million till September 30, 2024 ;(iii) termination may expose GoP to reputational and legal risks under the sovereign guarantee and Bilateral Investment Treaties (BITs).
Option 3-Constitution of a negotiation committee to settle with APL (i) GoP may negotiate with APL for premature termination of IA to settle the payment obligations with mutual consent under the provision of Clause 21.2 (a) of IA which states that;
“If any dispute or difference between the Parties shall arise out of or in connection with this Agreement (each a “Dispute”) the Parties shall attempt in good faith to settle such Dispute by mutual discussions within fifteen days after the date the disputing Party gives written notice of the Dispute to the other Party.”
Therefore, a Negotiation Committee may be constituted under National Task Force Implementation of Reforms (Power Division) comprising of the representative of Petroleum, Finance, Law and Justice Divisions and PSO to negotiate the terms of IA including Guarantee Agreement and Letter of Agreement with APL. Ownership of fuel in pipeline be also ascertained.
Following are the legal facts of available options; (i) Sovereign Guarantee issued by GoP to APL provides full contractual protection to lenders and foreign shareholders; abrupt termination may trigger claims in international arbitration ;(ii) the Implementation Agreement expressly prohibits unilateral termination without adherence to stipulated procedures. Any deviation may undermine GOP’s credibility in honouring contractual obligations ;(iii) adopting Option 1 minimizes legal exposure, as payments will be made in line with the existing contractual framework till March 2027. It spreads payment burden across quarterly instalments instead of requiring lump-sum termination payments ;(iv) strengthens investor confidence for APL to develop alternate usage of the strategic pipeline, enabling a third entry point for white oil imports into the country ;(v) unilateral termination (Option 2) entails higher immediate fiscal outflow, coupled with potential litigation costs, reputational damage, and adverse signaling to foreign investors.
Petroleum Division was of the view that Option 3 may achieve a win-win situation for both the parties.
The Summary was circulated to Finance, Power, Planning, Law and Justice, Attorney General for Pakistan and SIFC for comments.
Law and Justice referred to its earlier comments of June 2, 2024, wherein Law conveyed to secure the consent of all parties involved in the agreements in line with the recommendations of the National Task Force, to ensure the NSA Is implemented in letter and spirit without legal complications and requested to ensure compliance of Commercial Terms. While Attorney General inter-alia ala has no objection and supported the Option-3 of the summary. Planning Division have also supported Option-3
After detailed discussion, the ECC constituted a committee comprising representatives of the Petroleum Division, Finance Division, Law and Justice Division, Special Investment Facilitation Council (SIFC) and Pakistan State Oil (PSO) under the ambit of the National Task Force-Implementation of Reforms (Power Division) to formulate a way forward by January 31, 2026. The committee will negotiate the terms of the Implementation Agreement, including the Guarantee Agreement and Letter of Agreement with APL, and will also decide on the question of ownership of fuel and the alternative use of the pipeline.
Ends
