Pakistan shelves $2b LNG project

Published: June 14, 2017


ISLAMABAD: As Saudi Arabia adopts an aggressive policy in the Middle East by cutting ties with Qatar, the PML-N-led government has shelved the $2 billion Gwadar-Nawabshah pipeline project, an alternative plan to implement Iran-Pakistan (IP) gas pipeline project following US sanctions against Tehran, in a move that will likely intensify row between Islamabad and Tehran on the gas pipeline project.

Qatar and Iran had been competing to provide gas to Pakistan.

The United States (US) had been pushing Pakistan to shelve the IP gas pipeline project and asking it to sign an LNG deal.

Pakistan had followed this policy and signed an LNG contract with Qatar where majority shareholders were US, Japanese and EU companies.

In a new development, Qatar started laying LNG gas pipeline in Pakistan. The proposal was taken up during the visit of Emir of Qatar Sheikh Tamim bin Hamad bin Khalifa al Thani in January this year.

Qatar joins race to win Pakistan’s LNG pipeline contract

This will not be a setback to Tehran but it would be a blow to China who had been denied this project.

Pakistan and China had signed a framework agreement on April 20, 2015 to award LNG Gwadar-Nawabshah pipeline and LNG terminal contract without a bidding process.

In addition, Pakistan had given a firm commitment to Tehran that it had started a LNG Gwadar pipeline contract, an alternative plan of implementing IP gas pipeline project and informed it that this pipeline would be connected with the Iran border once sanctions have been lifted.

Pakistan was bound to get gas from Iran from January 2015 and could face $3 million per day penalty for failing to receive gas under sales purchase agreement (GSPA). But Tehran had not pressed Pakistan and did not sue it in international court after Pakistan had held out assurance that it was going to start work on the LNG Gwadar pipeline project and that the remaining portion of 80 kilometers would be connected with the Iranian border once sanctions are lifted against Tehran.

The decision was taken in a high-level meeting chaired by Prime Minister Nawaz Sharif in the first week of this month. During the meeting, ministry of petroleum was directed to drop the Gwadar-Nawabshah LNG terminal and pipeline project and to immediately start work for setting up a new LNG terminal at Port Qasim, Karachi.

Govt agrees to allow private sector to market LNG

The project had been dropped on the pretext of higher cost despite the fact that the Executive Committee of National Economic Council (ECNEC) had approved this project after detailed cost examination.

An official of petroleum ministry 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 that 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 per cent higher rates.

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.

Exim Bank of China will provide funds at London Interbank Offered Rate (Libor) plus two per cent. During initial negotiations, the tolling fee for the Gwadar LNG terminal was estimated at 30 to 32 cents per million British thermal units (mmbtu) against 60 cents per mmbtu for Engro Terminal and 41 cents per mmbtu for second LNG terminal being set up in Karachi.

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Reader Comments (6)

  • Ghulam Mustafa Aziz
    Jun 14, 2017 - 10:45AM

    Do not know what is happening here. Am totally not in the picture. However backing off from a deal with either Iran or Pakistan, well why did we committ in the first place.

    We keep on doing this we will always be dependent upon USA and its allies. Even Europe wants to get away from USA.

    We are isolating ourselves politically and economically from everyone.

    The reason is that every government which comes in, the bureaucracy and the politicians start working on how to establish themselves till the next time.Also why establish themselves, to do good. No, not at all. Both the politicians and the bureaucrats specially the former, do not give two hoots about the country, in fact they have given up on the country and like vultures are taking their pick from what they think is a dead nation. So fill your pockets up and do the same again and again and again.

    Wake up people. wake up. Recommend

  • Jameel ur Rasheed
    Jun 14, 2017 - 10:52AM

    Good riddance. China has low balled in almost every project. Halfway through the project the revise cost estimates under cost escalation charges with an increment just enough to force government to approve the cost hike. There was an article on this issue on tribune a while ago. Good read. Recommend

  • Faisal
    Jun 14, 2017 - 11:12AM

    Why will we make our own decisions and foregin policy? When will the govt decide to stop begging from Saudi Arabian govt and act independent on its own?

    Yes there will be repurcussions but these will be short term but in the long termit will be benefical for Pakistan.Recommend

  • Ahmad
    Jun 14, 2017 - 11:38AM

    Never because they are Corrupt to the Core, All of them! Recommend

  • Sara
    Jun 14, 2017 - 12:45PM

    Well, the choice was between Jeddah steel mill or LNG project… decisions, decisionsRecommend

  • Shakeel Mahota
    Jun 14, 2017 - 2:16PM

    After no progress on Iran and Qatar, CASA-1000 and TAPI projects are next hopes…Let’s hope nothing adverse happens between Russia and Central Asian States when we have to choose between the two.. Recommend

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