Strategic retreat: NBP, OGDC burst the IP gas pipeline bubble

Local giants decide not to finance project strongly opposed by the US.

Zafar Bhutta December 22, 2011


The government has faced a major set back in the Iran-Pakistan (IP) gas pipeline project as the country’s largest bank National Bank of Pakistan and the country’s largest exploration company Oil and Gas Development Company Limited on Thursday refused to finance it due to possible sanctions by the US.

Sources told The Express Tribune that a representative of National Bank of Pakistan (NBP) informed the steering committee on gas import projects on Thursday that it had branches in different countries of the world and therefore it feared that these branches could be closed due to US sanction against Iran.

Oil and Gas Development Company Limited (OGDCL) already cash constrained due to the circular debt said that its US investors, having a 1.6% share in the company, had threatened to retreat if the company financed the IP gas pipeline project.

The project, first proposed in the 1990s, has faced numerous delays. The United States last year said that Pakistan should be wary of committing to the proposed Iran-Pakistan natural gas pipeline.

The spiralling circular debt is another reason, another sources said.  The Government Holding Company, however, is still committed to finance $60 million for the project.

The Economic Coordination Committee’s (ECC) Steering Committee on Iran-Pakistan (IP) Pipeline and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline projects on Thursday approved to hire a consortium of Pakistani and Chinese banks as financial consultant to generate $1.2 billion for IP gas pipeline project.

TAPI project one
step closer

The steering Committee that met on Thursday also gave a go-ahead to sign the Gas Sales Purchase Agreement (GSPA) with Turkmenistan for Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project at 70 per cent parity of Brent oil. Pakistan earlier signed GSPA with Iran at gas price equal to 78 per cent of crude oil under Iran-Pakistan (IP) gas pipeline project.  The TAPI gas pipeline project is valued at more than $3 billion

Petroleum Minister Dr Asim Hussain confirmed to The Express Tribune that the steering committee had approved to hire a bank consortium of Pakistan and China including Habib Bank and Industrial and Commercial Bank of China Limited.

The meeting informed that the government would generate Rs34 billion per year through charging Gas Development Cess (GDC) on natural gas to finance gas import projects, said an official.

The petroleum ministry also informed Prime Minister Yousaf Raza Gilani on Thursday during a meeting that the steering committee had approved the financial consultancy for Pakistan-Iran Gas Pipeline, which was a major step forward as far as the project was concerned.

Published in The Express Tribune, December 23rd, 2011.


Cautious | 10 years ago | Reply

Wasn't that long ago that ET ran an article which indicated that Iran was going to fund the development of this pipeline --- if that was correct then why do you need capital from anyone? Perhaps the real issue is that Iranians want/need a firm purchase commitment backed by financial guarantee and companies are afraid that such a guarantee might put them in the crosshairs of international sanctions?

Sunny | 10 years ago | Reply

Do we really need public sector NBP's overseas branches? What contributions are they really playing in Pakistan's development except to use these branches for paid overseas assignments to favourite blue eyed corrupt workers. Pakista has enough foreign bank's network inside Pakistan to fill the little gap NBP's closure overseas.

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