The ECC approves dollarised returns for a $300m oil pipeline project of Pakistan Azerbaijan energy cooperation pipeline, aiming to enhance Pakistan’s energy infrastructure. On Monday, September 1, 2025, Pakistan’s Economic Coordination Committee (ECC) approved dollarised returns for a $300m oil pipeline project with Azerbaijan, aiming to shift oil transport from roads to pipelines, despite concerns from ministries.
The Pakistan Azerbaijan cooperation strengthens bilateral ties and addresses inefficiencies in Pakistan’s oil transport system, critical for South Asia’s energy security and economic stability.
Oil Pipeline Pakistan: ECC’s Decision
The ECC’s approval of dollarised returns for the Pakistan Azerbaijan energy cooperation pipeline, valued at PKR 83.3 billion ($300m), marks a significant step in modernising Pakistan’s energy infrastructure. The decision, announced on Monday, September 1, 2025, allows transportation tariffs to be denominated in US dollars, but only if foreign investment is secured, addressing concerns from the Petroleum and Finance Ministries about financial risks. According to the Ministry of Energy on X, the project aims to reduce reliance on road transport, which currently handles 70% of Pakistan’s petroleum products.
White Oil Pipeline: Project Details
The white oil pipeline, developed in collaboration with Azerbaijan, will transport refined petroleum products, replacing inefficient road and rail systems. Currently, 28% of petroleum products are moved through an existing pipeline from Karachi to Machike, with only 2% by rail. The Frontier Works Organisation (FWO) proposed a 14.6% internal rate of return (IRR) and a 25% equity IRR, though the Oil and Gas Regulatory Authority (Ogra) noted that the final cost depends on the financing and operational model. Ogra will declare the pipeline the default mode for oil transport, requiring Oil Marketing Companies to commit to minimum annual volumes.
Addressing Ministerial Concerns
The Petroleum and Finance Ministries raised objections to the dollarised returns, citing potential strain on Pakistan’s foreign exchange reserves. The ECC mitigated these concerns by stipulating that dollarised returns apply only with foreign investment, ensuring fiscal prudence.
Energy Cooperation: Regional Implications
The Pakistan Azerbaijan energy cooperation pipeline aligns with Pakistan’s broader strategy to diversify energy sources and enhance regional connectivity. Azerbaijan’s expertise in energy infrastructure complements Pakistan’s need for efficient oil transport, reducing logistics costs and environmental impact. The project is expected to bolster economic ties, with Azerbaijan emerging as a key partner in Pakistan’s energy sector.
Background
Pakistan’s energy sector faces challenges from an outdated transport infrastructure, contributing to high costs and inefficiencies. The existing Karachi-Machike pipeline, operational since the 1980s, is insufficient for current demand. The new pipeline, part of Pakistan Azerbaijan energy cooperation, aims to address these gaps, supporting the country’s goal of achieving energy security amidst rising import bills, which reached $27.84 billion in July-December 2024, a 6.52% increase year-on-year.
What’s Next Pakistan Azerbaijan Energy Cooperation Pipeline
As the Pakistan Azerbaijan energy cooperation pipeline progresses, stakeholders will focus on securing foreign investment and finalising the operational model to ensure sustainable energy transport by 2026.
Published in SouthAsianDesk, September 2nd, 2025
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