Financing needs: IP gas pipeline – Russia catches Pakistan’s eye
By Zafar Bhutta
Published: March 20, 2012
As a Chinese bank has backed off from financing the $1.5 billion Iran-Pakistan gas pipeline project amid pressure from the United States, Russia has caught the attention of Pakistan, which is planning to explore this viable option first.
The decision to negotiate a deal with Russia came in a recent meeting of the sub-committee formed by the Economic Coordination Committee (ECC) of the cabinet.
Earlier, Russia had offered Pakistan that it would fully finance the pipeline if its energy giant Gazprom was awarded the contract without bidding during a four-day visit of Foreign Minister Hina Rabbani Khar to Moscow in February. In order to give its assent to the offer, the government will have to waive Public Procurement Regulatory Authority (PPRA) rules – designed to ensure transparency in government dealings.
“A delegation will visit Russia soon to negotiate a deal with Gazprom,” Petroleum Secretary Ijaz Chaudhry told The Express Tribune. Recently, he said, the ECC sub-committee had considered different options for going ahead with the vital gas pipeline project.
“No decision, however, has been taken yet to award the contract to Russia, but Pakistan will discuss this option,” he clarified.
Chaudhry also dispelled perception that the Industrial and Commercial Bank of China (ICBC) had distanced itself from the project and said “we have written a letter to ICBC, asking it to clear its position as financial adviser to the project.”
The Inter-state Gas Systems (ISGS) had signed a deal with financial advisers for raising funds for the project, except for ICBC which was in the process of taking approvals.
“It is apprehended that a probable reason for not signing the agreement could be geo-political situation in the region,” said a summary tabled before ECC.
Earlier, the sub-committee had considered approaching China and Russia to seek financial assistance for the project. However, Russia now appeared to be leading the race, a ministry official said, adding the committee also studied the Iranian offer of $250 million for constructing the pipeline.
Under the project, an 800-kilometre-long pipeline will be laid from the Iran-Pakistan border to Nawabshah.
According to sources, the project has entered implementation phase and work on front-end engineering and design, feasibility and detailed route survey has already got under way. A joint venture of Germany’s ILF and Pakistan’s Nespak is doing the engineering work and survey, scheduled to be completed by June this year.
Cost of the project is likely to rise to around $1.5 billion compared to earlier estimates of $1.2 billion. ECC has set a debt-to-equity ratio of 70:30 for the project with the government holding majority shares on the equity side.
According to the ECC summary, tender documents have been issued to pipeline suppliers while for engineering, construction and procurement (ECP) contractors and compressor station suppliers, tender details are being finalised, which will be issued in a couple of months. These contracts are expected to be executed in the second and third quarter this year.
Published in The Express Tribune, March 20th, 2012.