Financing the project: Chinese bank ‘backs off’ from Iran gas pipeline

‘Changing geo-political situation’ cited in report submitted to ECC; discusses wheat barter with Iran.

Shahbaz Rana March 13, 2012


The all-weather friendship appears overcast, purportedly due to Western pressure.

A federal cabinet committee on Tuesday constituted a ministerial committee for reviewing alternate options to arrange funds for construction of the Iran-Pakistan gas pipeline after a Chinese bank backed off from financing the project.

Headed by Finance Minister Dr Abdul Hafeez Shaikh, the Economic Coordination Committee (ECC) of the Cabinet took the decision after the petroleum ministry disclosed that the Industrial and Commercial Bank of China (ICBC) was reluctant to sign the financial advisor contract despite being the lowest bidder.

The financial advisor is responsible for arranging funds for completing the 800-kilometre-long pipeline, at an estimated cost of $1.5 billion.

The committee will comprise the petroleum minister, the water and power minister, the State Bank governor, petroleum, finance and economic affairs division secretaries and the Planning Commission deputy chairman.

“A probable reason for not signing the agreement [by the ICBC] to date could be changing geo-political situation in the region,” said a petroleum ministry summary tabled at the ECC meeting. Earlier, the US has threatened to impose sanctions on companies that deal with Iran.

The ICBC was finalised as the financial advisor through an international competitive bidding. However, according to a petroleum ministry official, the bank had demanded awarding the pipeline construction project to a Chinese firm without competitive bidding.

The petroleum ministry sought the ECC’s permission to cancel the contract with the ICBC and award it to the second-lowest bidder, which is a consortium of United Bank Limited, Burj Capital, ECO Trade and Development Bank, Field Stone Group and Islamic Corporation for Development of Private Sector.

The decision to go ahead with the pipeline project came despite a US ‘warning’ to look for alternative options and abandon the project.

According to a contract signed in 2009, Iran will supply 750 million cubic feet of gas per day from South Pars fields to Pakistan.

Alternative options

The ministerial committee will consider two options.

The petroleum ministry has proposed that the government set up separate accounts in Pakistani banks to collect a gas development cess levied to build the pipeline. The estimates suggest that all funding requirements could be met through gas cess, the proposal stated.

The ministry also proposed to approach the Chinese, Russian or Iranian governments for signing government-to-government contract for construction of the pipeline from the Iranian border to Nawabshah. If this proposal was accepted though, the government will have to waive off public procurement regulatory authority rules to avoid competitive bidding. Iran has already offered $250 million for pipeline construction.

Exporting wheat

The ECC also discussed the possibility of exporting wheat to Iran in a barter arrangement, agreed to explore further arrangements of barter trade with Iran, expedite the process, plan the restructuring of barter system, and to find out items which may be procured from Iran in return. A ministerial committee was also constituted to look into the issue and report to the ECC.

The committee also allowed selling 450,000 metric tons of surplus wheat in the domestic market. The ministry of national food security and research had proposed selling 1 million tons of wheat to the local millers.

Railways loan

The ECC approved Rs6.1 billion in loan for railways ministry for repair of 96 locomotives. The loan will be given in advance to Pakistan Railways Advisory and Consultancy Services Limited, a subsidiary of Pakistan Railways whose shares are wholly owned by the government. The railways ministry has already signed the loan agreement with a consortium of commercial banks.

Other decisions

The ECC increased the sale price of fertiliser at government outlets by 23%. Against the previous rates of Rs1,300, the new price has been set at Rs1,600 per 50 kg bag, according to the finance ministry.  The government is subsidising imported urea since each 50 kg bag costs more than Rs3,000.

Meanwhile, the body also changed the sales tax calculation formula on hydroelectric power.

(Read: Pakistan and the Iran pipeline)

Published in The Express Tribune, March 14th, 2012.


Tony C. | 9 years ago | Reply

@usmanx: Dear usmanx, You are quite right about petty rivalries, which are occurring at several levels throughout the Muslim world. The rivalries have probably been occurring for thousands of years, but have been particularly disastrous for Muslims, because of of Christianity. Any child in second grade can see that the Western world has been following a policy of attacking and/or destabilizing Muslim countries since the early crusades at the start of the second millennium. The Muslim world was starting to get itself established after WWII, albeit with a few hiccups, but unfortunately Britain/America gave Palestine to a non Arab people, which created a destabilizing effect, and ten years ago, they started picking off Muslim countries one by one in a domino effect. The Arab world has done nothing to help their brother Muslims , and in fact many of them, particularly the Gulf states, have actively helped the West to bring down Muslim countries. It would appear that until the petty chieftains, from the King of Arabia down to small groups such as the Taliban, start to cooperate with each other and form stable alliances, which have muscle power and economic strength, the Muslim world will be doomed to filling in a backwater. It is so tragic really. Muslims have a lot of oil and other resources , large populations, reasonably good education systems, but they fall down at the political level, which allows the West to walk all over them. Muslim countries need to start meeting on a regular basis with a view to ironing out their differences and forming a solid Muslim bloc, which can compete with the West, and other powerful entities.

usmanx | 9 years ago | Reply


That's the way to go but almost all leaders of islamic nations lack vision (with the exception of Erdogan). The rest are busy in power, petty rivalries and distrust.

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