Govt finally allocates Rs25b for Gwadar LNG pipeline

Money will come from GIDC collection; finance ministry promises more funds

Zafar Bhutta February 21, 2017
Other projects are being executed under the CPEC programme, but the petroleum ministry could not push the Gwadar LNG pipeline into the CPEC framework despite repeated attempts. PHOTO: FILE

ISLAMABAD: The government has earmarked Rs25 billion out of gas infrastructure development cess (GIDC) collection for implementing the $2 billion Gwadar liquefied natural gas (LNG) pipeline project.

The disclosure was made in a meeting of the Economic Coordination Committee (ECC) held on February 13.

According to officials aware of the development, the government has received about Rs183 billion so far on account of GIDC meant for spending on different gas pipeline projects.

Chinese offer to finance whole $2b LNG project

The Ministry of Finance has been reluctant to release the cess. However, it is a good sign for the Ministry of Petroleum and Natural Resources that the government has now set aside Rs25 billion out of the collected cess for the Gwadar-Nawabshah LNG pipeline and terminal.

According to the officials, other projects are being executed under the China-Pakistan Economic Corridor (CPEC) programme, but the petroleum ministry could not push the Gwadar LNG pipeline into the CPEC framework despite repeated attempts.

In the ECC meeting, the Ministry of Finance insisted that besides the allocated Rs25 billion, more funds would be earmarked from the GIDC for the LNG pipeline.

The Ministry of Petroleum recalled that while considering a summary on the revised implementation strategy for the Gwadar LNG pipeline and terminal, the ECC in its December 13 meeting had decided that since the Central Development Working Party (CDWP) and the Executive Committee of National Economic Council (Ecnec) approved PC-1 of the project, any amendment was also required to be placed before Ecnec.

Later, a meeting was held on January 2 under the chairmanship of Planning and Development Minister Ahsan Iqbal to seek guidelines and the way forward for the Gwadar LNG project and the North-South LNG pipeline scheme.

After Ecnec’s approval, Inter State Gas Systems (ISGS), a company set up by the government for gas import projects, would be authorised to give an engineering, procurement and construction (EPC) contract to China Petroleum Pipeline Bureau.

It was decided that the petroleum ministry would submit a proposal to seek ECC’s approval for exemption from the Public Procurement Regulatory Authority (PPRA) rules in the award of EPC contract in a government-to-government arrangement. The Ministry of Finance would also be required to issue sovereign guarantees.

The Ministry of Petroleum suggested that ISGS should be authorised to award the contract to China Petroleum Pipeline Bureau without inviting competitive bids.

It also sought approval of government guarantees against a Chinese loan facility. The ECC directed the ministry to consult with the Law Division and PPRA in that regard.

Though more than one and a half year is gone, the Gwadar-Nawabshah LNG terminal and pipeline project has remained on paper, upsetting China that has been waiting to kick off work on the scheme.

In revised offer, China wants to work as construction contractor in Gwadar

The ECC has also not yet given the go-ahead to a commercial agreement, although the price negotiating committee finalised terms and conditions of it several months ago.

A framework agreement was signed between Pakistan and China on April 20, 2015 for developing the LNG terminal and pipeline project. Under the arrangement, China will provide 85% of financing whereas Pakistan will contribute 15% of equity.

Exim Bank of China will provide funds at London Interbank Offered Rate (Libor) plus 2%.

During initial negotiations, the tolling fee for the Gwadar LNG terminal was estimated at 30 to 32 cents per million British thermal units (mmbtu).

Published in The Express Tribune, February 21st, 2017.

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