ISLAMABAD – The Ministry of Finance (MoF) has raised serious concerns about the financial viability and regulatory implications of the proposed Machike–Thallian–Tarujabba White Oil Pipeline (MTT-WOP), particularly its impact on gas consumers and Oil Marketing Companies (OMCs), Newzshewz has reliably learnt.
In its recent meeting, the Economic Coordination Committee (ECC) of the Cabinet reviewed a summary from the Petroleum Division regarding the MTT-WOP project. While the committee expressed general support for the initiative, it deferred final approval until the next meeting, requesting detailed input from the Finance, Planning, and Petroleum Divisions on the project’s financial and operational modalities.
The Finance Ministry warned that the proposal essentially seeks a customized regulatory regime for a single project, which could introduce distortions in the market. It emphasized that any regulatory changes should be based on uniform principles applicable across the industry, to foster transparency and competition for the benefit of both the economy and consumers.
The Ministry suggested that the Petroleum Division should clarify how the proposed changes would promote competition and transparency, and recommended consulting the Competition Commission of Pakistan (CCP) on the matter.
Furthermore, the Ministry noted potential adverse impacts on the Inland Freight Equalization Margin (IFEM) and consumer prices, cautioning that the immediate financial burden could be significant.
“The proposed Weighted Average Cost of Capital (WACC) of 28% appears excessively high for an infrastructure project under a government-to-government (G2G) framework, especially considering regional benchmarks of 10–15%. The Internal Rate of Return (IRR) of 14% also seems overly generous, given the volumetric guarantees and shortfall recovery through IFEM,” the Ministry stated in its comments.
Such provisions, it added, shift all commercial risks to the OMCs while offering risk-free returns to the project sponsor. Additionally, linking the tariff to the US dollar could expose both OMCs and end consumers to foreign exchange volatility, increasing the risk of inflation-sensitive price pass-through.
The summary also lacks detail on whether any consultations were held with OMCs, or what their feedback has been. The proposal mandates the use of a specific transportation facility by OMCs, which could represent a move toward greater regulation—contrary to the broader objective of deregulating petroleum product prices in order to benefit consumers.
The Ministry urged caution on the issue of guaranteed throughput, citing past experiences with similar projects such as PAPCO and Asia Petroleum, where the government had to make substantial payments to cover shortfalls—some of which remain unpaid.
Moreover, in line with the Cabinet Committee on State-Owned Enterprises (CCoSOEs) directive that the government should exit commercial ventures, the Petroleum Division was asked to clarify: (i) whether the FOC is a state-owned enterprise, and if so, whether it has been reviewed by the CCoSOEs for categorization; and (ii) whether the project could be implemented through the private sector instead. Ends
