Gwadar LNG pipeline: Finance ministry supports sovereign guarantees

PPRA agrees on award of contract to Chinese firm without bidding

Zafar Bhutta March 07, 2017
Turkmenistan team is in country; route survey, feasibility study to begin immediately. PHOTO: EXPRESS

ISLAMABAD: The Ministry of Finance and Public Procurement Regulatory Authority (PPRA) have cleared the economically feasible and strategic Gwadar-Nawabshah liquefied natural gas (LNG) pipeline project, paving the way for award of its contract to a Chinese company, an official reveals.

The project won the vital clearance after the Ministry of Petroleum and Natural Resources sent a summary to the Economic Coordination Committee (ECC), proposing to authorise Inter State Gas Systems (ISGS) - a state-owned concern that works on gas import projects - in line with Rule 5 of the Public Procurement Rules 2004 to award an engineering, procurement and construction (EPC) contract to China Petroleum Pipeline Bureau along with inking ancillary agreements without open competitive bidding.

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The ministry also called for issuing sovereign guarantees of the government of Pakistan against a Chinese loan facility.

It recalled that governments of Pakistan and China had entered into a state-to-state framework agreement on April 20, 2015 during Chinese president’s visit to Pakistan. The cabinet approved the agreement on July 15, 2016.

Subsequently, the agreement was extended for one year with mutual consent of the two countries.

The ECC discussed the petroleum ministry’s proposal, but stopped short of taking a decision with the directive to the ministry to examine all legal aspects in consultation with the Ministry of Law and PPRA.

According to the official, the Ministry of Finance, while giving its opinion, supported the issuance of sovereign guarantees to the Chinese company for the award of pipeline contract, which would lead to savings of millions of dollars.

After reviewing the summary, the PPRA also gave its backing to the award of contract without competitive bidding because of it being a government-to-government deal. Now, the summary will be tabled for approval of the ECC.

The official pointed out that the Price Negotiating Committee, constituted by the ECC, had finalised the contract cost and the Executive Committee of National Economic Council (Ecnec) had also accorded its approval.

The committee has agreed on a cost of $30.70 per inch metre for the purchase of pipeline material and construction contract compared to $31.2 at which Sui gas companies have laid pipelines.

“This will result in savings of $200 million per annum,” the official said, adding the price committee had set steel cost in talks with the Chinese company at Rs75,000 per ton one year ago. Sui gas companies had purchased steel at 100% higher rates.

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Ecnec has approved the project at a cost of $48.32 per inch metre. The cost includes purchase of pipeline material, its construction, engineering and other facilities and non-EPC work including right of way, land acquisition, consultancy and auxiliary costs.

“This project will cause huge savings, secure LNG supplies and bring foreign investment,” the ministry official said, adding the LNG pipeline would help inject much-needed gas into the industrial units to be set up in Gwadar under the China-Pakistan Economic Corridor (CPEC).

Published in The Express Tribune, March 7th, 2017.

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