Government Reverses Course on APL Pipeline Agreement Termination
In a significant policy shift, the Pakistani government has decided to abandon its proposal to unilaterally terminate the implementation agreement with Asia Petroleum Limited (APL). This move comes amid concerns that such termination could severely damage foreign investor confidence in the country's energy sector. Instead, authorities have chosen to pursue an alternative strategy involving the utilization of strategic pipelines through a third entry point for white oil imports.
Alternative Pipeline Use: A Win-Win Solution
The government believes this alternative approach will create a mutually beneficial situation for both the state and APL. The Economic Coordination Committee (ECC) has taken concrete steps by establishing a high-level committee tasked with finalizing terms and conditions for this alternative pipeline use by January 31, 2026.
APL Pipeline Infrastructure and History
Asia Petroleum Limited, established in 1994 with World Bank assistance as a public limited company, owns and operates an impressive 82-kilometer pipeline system with a 14-inch diameter. This infrastructure boasts a throughput capacity of 3.2 million metric tons per annum, originally commissioned to supply furnace oil to the Hub Power plant.
The company represents a significant joint venture with the following shareholding structure:
- Pakistan State Oil (PSO) - 40% shares
- Infraone Limited, Hong Kong - 20% shares
- Independent Petroleum Group, Kuwait - 12.5% shares
- Weco International - 12.5% shares
Contractual Framework and Recent Developments
The implementation agreement between APL and the Government of Pakistan was formally executed on June 28, 2009, with effectiveness dating back to November 2, 1996, and extending through March 30, 2027. Under this agreement, the government guarantees a minimum throughput of 1.5 million metric tons annually at specific rates: $12.13 per ton for the first decade, followed by $6.99 per ton thereafter.
Recent deliberations presented three distinct options to the ECC:
- Unilateral termination of the implementation agreement effective October 1, 2024
- Alternative use of strategic pipelines for white oil imports
- A third unspecified option supported by the Ministry of Planning
National Task Force Recommendations and Concerns
The National Task Force – Implementation of Reforms (Power Division), in its October 28, 2024 meeting attended by PSO's Managing Director, APL's CEO, and the Director General (Oil), initially recommended unilateral termination. This approach was seen as minimizing legal exposure and execution risks while maintaining the existing contractual framework until March 2027. It would also spread payment obligations across quarterly installments rather than requiring substantial lump-sum termination payments.
However, significant concerns emerged regarding this termination approach:
- Higher immediate fiscal outflows
- Potential litigation costs
- Reputational damage to Pakistan's investment climate
- Adverse signals to foreign investors
Government Consensus and Committee Formation
The Law Division had previously advised the Petroleum Division to secure consent from all involved parties, aligning with National Task Force recommendations. While the Attorney General of Pakistan supported the second option (alternative pipeline use), and the Ministry of Planning backed the third option, the Special Investment Facilitation Council (SIFC) and PSO decided to finalize a way forward by January 31, 2026.
The ECC has now approved the alternative use of the APL pipeline for fuel supply and established a comprehensive committee including representatives from:
- Petroleum Division
- Finance Division
- Law & Justice Division
- Special Investment Facilitation Council (SIFC)
- Pakistan State Oil (PSO)
- National Task Force
This committee will undertake critical negotiations covering:
- Terms of the implementation agreement
- Guarantee agreement details
- Letter of Agreement with APL
- Ownership of fuel in the pipeline
The committee must submit its comprehensive way forward for ECC consideration by the January 31, 2026 deadline. Additionally, the ECC has directed the Ministers of Petroleum and Power to engage in discussions and suggest specific alternative uses for the currently unutilized pipeline capacity.
