FD, PD have divergent views on incentives for MIT-WOP

ISLAMABAD: Finance Division and Petroleum Division are said to have divergent views on incentives for the Machike -Thallian – Tarrujabba White Oil Pipeline (MTT-WOP), sources told Newzshewz.
During the visit of Ilham Aliyev, the President of Azerbaijan to Pakistan on 11-13th July, 2024, Pakistan side presented several projects to Azerbaijan for investment including establishment of Joint Trading Company, investment in petrochemical refinery, upgradation of PRL, underground gas storage, Machike -Thallian – Tarrujabba White Oil Pipeline (MTT-WOP) etc. The Azerbaijan side showed interest in these projects. Much progress has been made since then.
On December 9, 2024, SAPM on Foreign Affairs stressed upon the need to address all outstanding issues with Azerbaijan and underscored that preparations be made for the visit of the Prime Minister of Pakistan to Azerbaijan which was scheduled in February 2025.
One of the project listed in the said letter was the MTT-WOP. In line with the urgency of the subject matter, technical team from Frontiers Works Organization (FWO) visited Baku from 23rd to 27th December, 2024 and carried out in-person meetings with their SOCAR counterparts to progress on the White Oil Pipeline Project.
As the follow up, the Prime Minister deputed a high level delegation under the leadership of Minister for Communication/ Privatization who visited Baku on January 31, 2025.
During a meeting of the Minister with the President of SOCAR, SOCAR put across the condition of “Ship or Pay” for investment in the project. Subsequently, the project was also discussed during the visit of the Prime Minister to Azerbaijan on 23 to 24 February 2025.
In light of the above, FWO and PSO (joint consortium partners) through their project company Frontier Oil Company-I (FOC-I) and in consultation with all stakeholders have developed an alternate option of “Ship or Pay” to address the concerns of SOCAR. According to the agreed mechanism, OGRA will design a regulatory framework to ensure optimal utilization of pipeline by declaring it a default mode of transportation. Accordingly, FOC-I submitted a revised tariff petition to OGRA for Machike to Thallian section of White Oil Pipeline which has been acceded to by OGRA whereas work on tariff petition for Thallian to Tarrujabba section is in progress.
OGRA has requested Petroleum Division to obtain necessary approval from ECC of the Cabinet on the following key terms and conditions, which were submitted by FWO and have been agreed between stakeholders for the said project and provisional tariff has been approved based on the said terms.
The ECC being the competent authority has been requested to approve the following regulatory framework/ policy guidelines proposed by OGRA for Machike-Thallian section, which will also be applicable for Thallian to Tarrujabba section: (i) tariff shall be in US dollar based instead of Rupee based tariff. OGRA has already determined the provisional tariff in US dollar ;(ii) a regulatory framework shall be developed by OGRA to ensure optimal utilization of pipeline by declaring it a default mode of transportation ;(iii) OGRA may be authorized to develop a commercial framework which will require OMCs to commit minimum annual pipeline volumes ;(iv) if committed volumes thresholds will not be met, the shortfall will be covered/ adjusted by OGRA through existing IFEM of each OMC ; and (v) if the committed volumes for the year are below the minimum volumes required, the shortfall will be met through IFEM mechanism of the country. OGRA may be authorized to develop mechanism for enabling above provision.
The Summary was earlier circulated to Finance Division, Planning, Development & Special Initiatives and OGRA for comments.
The ECC considered the said summary and the said decision of June 2, 2025 constituted a committee co-chaired by Secretary Finance and Secretary Petroleum and including representatives from OGRA and Ministry of Planning Development & Special Initiatives, to review and finalize the financial modalities of the project and to ensure that the proposed tariff has been calculated correctly on the basis of realistic financial assumptions. Meeting of the Committee was convened on June 4, 2025 followed by multiple working level meetings wherein financial model of project was reviewed by the Finance Division. Finance Division in a letter of July 28, 2025 have advised for rationalizing the interest rate assumptions, more rational WACC calculations, increase in the payback period from 4 to 7 years, in order to avoid higher tariff impact at the early stages of the project. Furthermore, Finance Division suggested that the technical details relating to IFEM and declaration of ‘default mode of transport’ may be finalised by Petroleum Division taking into consideration the peculiar needs of the sector.
Finance Division’s advice has been reviewed and Petroleum Division feels that these amendments will make the key project unattractive. Accordingly, Petroleum Division reiterate its original proposal at para-5 above for consideration of ECC. Ends