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Bahawalpur tragedy hastens oil infrastructure projects

Updated July 24, 2017

It costs a lot in Pakistan — financially, economically, and through loss of human lives — to get things moving for strategic projects that ought to take off on commercial considerations.

The recent 219 heartbreaking deaths following the oil tanker accident near Ahmadpur East have expedited a couple of oil infrastructure projects held up in cold storage since 2000-01.

Among them is a 475-kilometre pipeline project for transporting white oil products from Machike, near Multan, to Taru Jabba, near Peshawar, that could not be materialised for 17 years.

Investigations into the recent accidents have brought to the fore the vulnerabilities associated with transporting fuel by roads through tankers

Another relatively fresh project is being pushed by the Frontier Works Organisation (FWO) that involves an oil jetty at Port Qasim due to its connectivity to the existing White Oil Pipeline (WOP).

A parallel pipeline with the Mahmoodkot — Faisalabad — Machike pipeline and its extension from Machike to Taru Jabba as well as the construction of storages at Port Qasim and along the pipeline route is also being pushed.

An inter-ministerial task force had been looking into these projects for almost a year in view of serious storage capacity shortfalls for strategic reserves. This task force has picked up pace following the tragic accident.

The FWO has been lobbying for a throughput guarantee for its projects along with approval for pipeline tariff, facilitation in the acquisition of Right of Way (ROW) and grant of some tax incentives.

However, it was persuaded to withdraw its request for a throughput guarantee and ROW and instead approach the Oil and Gas Regulatory Authority (Ogra) for tariff.

The FWO is now seeking letters of support from the government to arrange financing and tariff-related matters.

The government would be formally supporting the organisation in view of their purely commercial nature without any liability on the part of the government.

Petroleum Minister Shahid Khaqan Abbasi is pushing for a network of oil pipelines to interconnect the oil depots, terminals, oil installations, etc. for smooth, efficient and reliable oil movement in the country.

He is unhappy at the slow progress by Pak-Arab Refinery Company (Parco) and Pak-Arab Pipeline Company (Papco), partially owned by the government, for multi-product movement through White Oil Product (WOP) and the Mehmoodkot-Faislabad-Machike pipeline.

It has been put on record that Papco could not execute its project to transport the dual product from WOP due to outstanding Rs5 billion payables from the Ministry of Finance.

This was because of a throughput guarantee, Papco is now moving with increased capacity from three million tonnes to five million tonnes per annum.

The project is expected to start transporting petrol by December 2017 along with diesel through the Multan-Faisalabad-Machike pipeline.

Movement of petrol from Karachi to Multan through WOP is expected to start by December 2018. Currently, Ogra is processing the petrol transportation tariff for said pipeline.

Separately, the petroleum ministry has started construction of an oil pipeline from Machike to Taru Jabba in three separate segments by floating separate open competitive tenders instead of an original combined project of 475km.

These would involve around a 175km segment from Machike to Chak Pirana (Kharian) District Gujrat followed by a 130km pipeline onwards Sihala near Islamabad and 175km from Sihala to Taru Jabba near Peshawar.

The pipeline construction would require a licence and tariff from Ogra.

The decision to offer three different segments for competitive bidding has been made following refusal by Papco/Parco to take up the project from Machike to Taru Jabba because of insufficient volumes but could consider Machike to Chak Pirana portion.

It has been reported that an earlier exercise by Pakistan State Oil and Attock Refinery for this pipeline was abandoned due to lack of requisite volume.

The petroleum ministry, however, believed the volumes may have been low in the past when petrol was not a deficit product but now adequate volumes were available for viability of the pipeline project.

The pipeline is envisaged to meet oil supplies requirements of all products to different locations from Machike to Taru Jabba. The two initial segments would be of 16-inch diameter that would tapper of to 12-inch for Sihala onwards.

The project was originally conceived in 2000 and route surveys were completed but could not take off because successive governments declined throughput guarantees on the pattern of Parco’s white oil pipeline in view of oil sector deregulation.

ARL and PSO had signed an agreement for the entire 475km pipeline and bids were invited from prequalified bidders in 2004.

Companies from China and Russia were identified and negotiations started. Even the most tedious process of right of way was also completed but progress could not be made.

Investigations into the recent accidents have brought to the fore the vulnerabilities associated with transportation of oil products through oil tankers on roads.

But security of product movement is a key consideration for oil movement and therefore pipelines are considered a safer mode.

Pakistan’s domestic refineries are currently capable of producing about 13-15m tonnes of petroleum products against an overall demand of about 25m tonnes.

In recent years, the demand for petrol and diesel has been growing at 20pc and 10pc a year respectively.

All refineries are located around Karachi except for mid-country Parco refinery near Multan and Attock Refinery further up in the North in Rawalpindi.

Published in Dawn, The Business and Finance Weekly, July 24th, 2017