Iranian president to visit Islamabad to push for IP gas pipeline project

Following lifting of sanctions, countries hoping project would be completed

ISLAMABAD:

Following the lifting of sanctions, Iran President Hassan Rouhani is set to visit Pakistan by the end of this month to push for the Iran-Pakistan (IP) gas pipeline project.

The project was to be commissioned in December 2014, but work was stalled after sanctions were placed on Tehran.

Officials now say that there are hopes that the project could be implemented.



The Iranian president will take up the issue during his visit to Islamabad, said an official, adding that Pakistan had committed to completing the project after sanctions are lifted.

Any delay on part of Pakistan in the post-sanction scenario would result in millions of dollars being imposed as penalty, besides upsetting diplomatic relations between the two countries.

The commitment

Iran had wanted some form of commitment from Pakistan, which was given in the form of awarding the LNG pipeline contract.

Officials say the standalone project of LNG Gwadar pipeline was feasible as the country required the pipeline capacity to pump LNG. A terminal at Gwadar would also help to import LNG.

But the petroleum ministry was facing problems in implementing the project as the Ministry of Finance appears to have spent the entire cess collection from gas consumers in bridging the budget deficit and is reluctant to provide $300 million for executing the $2 billion Gwadar LNG pipeline project, an official said.

This comes despite the Ministry of Petroleum and Natural Resources having approached the finance ministry to seek the release of gas infrastructure development cess (GIDC) collection for spending on planned gas import projects.

The finance ministry instead suggested to borrow around Rs100 billion from commercial banks. Earlier, gas utilities were working on enhancing the capacity of their pipeline networks to create room for LNG transportation.

So far, Rs183.86 billion has been received from consumers in shape of GIDC, which was imposed in January 2012 to finance gas import projects. However, nothing has been left as the finance ministry has consumed the entire amount.

For the Gwadar LNG pipeline, the government is negotiating a commercial deal with a Chinese company for kicking off work by the end of March.

The company, China Petroleum Pipeline Bureau selected by the Chinese government, will provide 85% of financing whereas Pakistan will inject 15% equity into the project.

The company is already working on pipeline projects stretching over 8,000 km in different countries including Myanmar, Bangladesh, Russia and other nations. It has also laid pipelines from Turkmenistan to China.

However, the petroleum ministry is encountering trouble due to delay in release of $300 million as the project should be completed by the end of 2017.

“Owing to delay in financial assistance, we may not be able to finish work on the project by the stipulated time,” an official remarked. The finance ministry, according to the official, was of the view that the government was required to frame cess rules and before that it could not release the funds.

Now, the petroleum ministry has planned to send a summary to the Economic Coordination Committee (ECC) for the availability of necessary funds to finance the pipeline project.

The Gwadar LNG pipeline is an alternative to the Iran-Pakistan gas pipeline project, which was stalled due to US sanctions on Tehran. The curbs have now been lifted and hopes arise that the project will be executed in the next two years.



Under the plan, the LNG pipeline will be laid from Gwadar to Nawabshah and a terminal will also be built at Gwadar port. The pipeline will be connected to the Iranian border at a cost of $200 million.

Published in The Express Tribune, March 1^st, 2016.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.