China cuts cost estimate by another $200 million for Gwadar LNG pipeline

Published: June 18, 2016


ISLAMABAD: Pakistan has clinched a gas pipeline deal at a lower price as China Petroleum Pipeline Bureau, a Chinese company, has revised the cost of laying the pipeline downwards to $1.3 billion after negotiations with the government in Islamabad.

Comeback: With LNG import, CNG sector hopes for revival

According to an official, Pakistan and the Chinese company had initialed an agreement for building a liquefied natural gas (LNG) pipeline from Gwadar, but the company has now lowered the contract price to $1.3 billion compared to $1.5 billion quoted in the financial bid given to Inter-state Gas Systems.

Earlier, China had expressed concerns over the slow progress being made in awarding the contract for the LNG pipeline.

“The revised cost is even less than the cost at which gas utilities – Sui Northern Gas Pipelines and Sui Southern Gas Company – are augmenting their existing pipeline network to enhance the transmission capacity to 1.2 billion cubic feet per day,” the official said.

China Petroleum Pipeline Bureau, which was designated by the Chinese government, brought down the cost estimate for laying the pipeline as well as installation of compressors after holding talks with a negotiation committee constituted by the government of Pakistan.

‘CPEC’s western route to be ready by 2018’

A revised PC-1 of the project has been approved by the Central Development Working Party of the Planning Commission. Now, the project has been sent to the Executive Committee of National Economic Council (Ecnec) for formal approval.

According to the official, Pakistan will negotiate a loan agreement with the Export-Import Bank of China that has already made an offer in this regard.

He said the gas utilities were working on extending the pipeline network at a cost of $1.1 billion that amounted to $34 per inch metre, but the cost of building the Gwadar LNG pipeline was $32 per inch metre.

“The deal with China is priced lower than the cost being incurred by local gas companies on extending their network,” he said.

The Chinese company will also construct an LNG terminal at Gwadar Port on build-and-operate model and it will be able to handle 600 million cubic feet of LNG per day.

The government would negotiate with the Chinese company a tolling fee keeping in view the fee for the other two LNG terminals being built by Pakistan companies, he said.

Elengy Terminal Pakistan Limited, a subsidiary of Engro Corporation, is running the first LNG terminal at Port Qasim with a fee of 66 cents per million British thermal units (mmbtu).

For the second LNG terminal at the port, the contract is being awarded to Pakistan GasPort Limited that has offered a tolling fee of 41.77 cents per mmbtu.

Raise in CPEC’s western route budget proposed

The previous Pakistan Peoples Party-led government had imposed gas infrastructure development cess (GIDC) on gas consumers for laying these pipelines and so far Rs183 billion has been collected.

However, the current PML-N government has spent the entire collection on metro bus projects and nothing is left for implementing gas import projects.

For the Gwadar LNG pipeline and terminal project, China will provide 85% of financing whereas Pakistan will contribute the remaining 15%. This is an additional burden that gas consumers will be bearing in addition to paying billions of rupees in GIDC.

Published in The Express Tribune, June 18th, 2016.

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Reader Comments (9)

  • Amanullah Khan
    Jun 18, 2016 - 9:17AM

    A good news for the time being, of reducing the cost of laying LNG pipe line from US 1.5 billion to US 1.3 billion by the Chinese firm. Further reductions in the cost are possible if the kick backs are slashed down from the total cost besides revisiting the details of cost estimates to identify the unnecessary fats those needed to remove. The poor consumers of gas have already been burdened/ cheated of about Rs 200 billion by the previous Government of PPP in the name of Gas Infrastructure Development Cess (GIDC). As Pakistanis we must appreciate the support of Chinese Government in selecting Pakistan for such heavy investments when so called friends are parting ways on the pretext of threats coming from the radicals and agents of RAW. I strongly believe that such mega projects must also be discussed in the Parliament before signing the agreements with foreign Governments. These projects contain huge amounts to be paid back in the form of foreign currency. Recommend

  • AD
    Jun 18, 2016 - 9:49AM

    Negotiation with no negotiating power.But a joke.Recommend

  • Amanullah Khan
    Jun 18, 2016 - 12:29PM

    AD I would differ with you. I have my personal experience that Chinese believe in negotiations and they are the best negotiators. They know as to to how to do business therefore they have achieved the position of world Economic Power defeating all their rivals. Recommend

  • Omar Sadiq
    Jun 18, 2016 - 1:52PM

    Does that mean our corrupt politicians could not usurp/loot/offshore the $200 million??? Poor guys, how will they run their palaces now?? How will they live in Dubai and London now?? How will they build new n bettter Bilawal Houses now?? How will they buy new London flats now?? Recommend

  • curious2
    Jun 18, 2016 - 5:17PM

    Competitive bidding is how major contracts are awarded in countries which has low corruption – they don’t have to rely on unilateral cost decreases or increases.Recommend

  • Salman
    Jun 18, 2016 - 5:24PM

    Way to go Pak-ChinaRecommend

  • Karachiite
    Jun 18, 2016 - 7:07PM

    The Pakistani public has no faith in its government to do anything for the masses, everything is done simply so that more money can go in the politicians pocket and nothing else matters.Recommend

  • Raghu
    Jun 19, 2016 - 3:38AM

    Good job PMLn. Through negotiations cost of multiple mega projects has been revised down. Keep up the good workRecommend

  • Amanullah Khan
    Jun 19, 2016 - 3:42PM

    It is not the PMLN alone, negotiated the projects with the Chinese Government and private Companies but a lot of work and efforts have also been put into the negotiations business by the previous Government of PPP. Transparency in these projects has been a big question mark. These negative impressions can only be removed by sharing all the details of cost estimates with the public because public money is used in all these projects. They are the owners of public money not the corrupt politicians and their fellow bureaucrats. Recommend

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