Financing the project: Chinese bank ‘backs off’ from Iran gas pipeline
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.
COMMENTS (49)
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@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.
Cynical,
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.
@usmanx
Sorry, my point was about asking help from and being dependent on an un Islamic entity like China.Why can't we explore strong Islamic nations like KSA,Iran,Turkey etc.? With an non Islamic country as powerful as China we will always be a junior partner where as with an Islamic country our partnership will be like a brotherhood. That's all I am looking for.
Cynical,
China has never demonstrated hegemonic tendencies towards Pakistan EVER. So long as that is true, why should my pride be hurt?
@usmanx
Agree with you on all points but one. Doesn't your pride gets a beating, being so dependent on a country which is not Islamic (in fact atheist for the worst)?
@god: Did you think I am a Pakistani? Thanks, you made my day. You Pakistanis are so funny! The whole world is laughing at your hubris. (you may have to use a dictionary).
MarkH,
my tone isn't
"if we do this then you have to do that”
rather it is
"do what you want"
@wow,
Not worth paper it is written on...
@usmanx: And what abouut MFN to India?
Ajit Harisinghani,
we would be glad to join you for tea but we must decline your generous offer. So long as our province of Kashmir is occupied and its people subjugated, we the people of Pakistan cannot in good conscience make a deal for the sake of money.
Respectfully,
Every man, woman and child of Pakistan.
Pakistanis, The Sino-Pak strategic alliance is indeed special and unique. Both countries wish each other well. Both have faced the wrath of global and regional powers. But in the end, it is an alliance of self-interests like almost all other alliances/partnerships. Just because a bank decided the project is not feasible due to political, geo-strategic considerations, that does not mean Pakistan and China alliance is over. We cannot expect for every ally to support us unconditionally. This doesn't even work in the smallest political unit (a family).
Pakistan is important to China. So long as Pakistan is a credible, mid-power, India can never focus their full arsenal on their northern perimeter. India can never attempt another forward policy. Pakistan is also China's short-cut to the Strait of Hormuz. Pakistan provides other benefits... for example, if china comes up with a stealth helicopter in the near future, you can bet Pak provided some "R & D" lol.
For Pakistan, we get military hardware knowledge transfer, a veto in the UN security council and a counter-balance to Indian hegemony. This century, China will reclaim its historic role as the world's most powerful civilization. For Pakistan to remain aligned with China makes good sense (a quality not always associated with our great nation :)
@Shahid: you got my point!
@Irrational:when will the wait over. I have been actually wiating for this little over a billion year.
America has bombed several countries into the stone age, and murdered several million people. They are not going to worry about disabling Pakistan's economy, or whether Pakistan people suffer during the cold winter months.
Usmanx : Nice wishful thinking bordering hallucination. US should fund TAPI pipeline, Russia/China or Iran should fund IPI pipeline. Pakistan will sell gas to India and China. Whose gas you are planning to export or sell. Do u think it is from sui gas wells. Remember you are only a toll gate. The seller and buyer are diff countries. If u dont know, ask the west and others, India and China are the toughest negotiators. They will win on money and time. U have none. So better stop hallucinating and plan on eating grass. Good luck. Once Baluchistan becomes independent, we will wake u up.
@o b server: India did not back off because of USA. They did it because of the insecurity in Pakistan.
@Irrational: funny guy. do allah have any contract to protect only you pakkistani guys? lol. stop using religion/god for your personal benefit.
China should invade Pakistan!
Pakistan should read the writing on the wall about its all weather friend who is not even proving to be a fair weather friend. The two main factors for India to withdraw from this deal was likely bombing of Iran and long term security concerns of pipeline passing through militancy prone areas. Pakistan should shelve this plan for the time being and wait for Indian response who would be able to bear major expenses of this project.
@BruteForce: You make a good point. But it is the Military-Mullah complex in Pakistan that decides policies. At least the blinkers will be off now. There is a limit to what the Chinese will do for Pakistan and it is the Pakistanis who were getting carried away by the so-called 'friendship'. History has shown that China does not side with Pakistan even when they were at conflict with India. The Chinese are shrewd and they know which side of their bread is buttered. They would never jeopardize their HUGE trade with the US and India just to please Pakistan.
@Ajit Harisinghani: You should suggest this to Indian Government. Originally the project was IPI (Iran-Pakistan-India), with all the planning going smooth. It was India, who backed-off on US pressure and then the whole project had to be re-designed and revised.
China is no friends of our...what matters most is "Interest".
And who says China is supposed to oppose the mighty America. China will not and cannot go against American political decisions till at least two decades from now. After that China will become another flourishing democracy; just like America. Brothers in hand.
@ smj Sound suggestion! @Ajit ji, India would be very welcome to finance and build the pipeline and even take delivery of some of the gas, if it dares defy Uncle Sam.
@Ash: Ha Ha Good one ASh. Yes, it was tea I was drinking... Too early for anything else. Ask me about the pipeline again when the sun goes down.... I'll be sipping some Old Monk by then!
@usmanx: It's not a bluff, it's a requirement regardless of feelings. The outcome is pre-decided no matter what happens in the meantime if the pipeline happens. Also, nobody is obligated to do anything for you. There doesn't have to be a compromise in Pakistan's favor in any way shape or form, so your "if we do this then you have to do that" tone is foolishness. It's like saying you're going to hit someone who would destroy you and then saying you won't do it if they meet your demands. They were never at a disadvantage so those demands go nowhere. The reality is more along the lines of if you throw the punch your body gets wrecked and if you don't it will remain functional. You don't get a bonus prize.
Though in the end I'm quite certain if the pipeline was abandoned and there was a direct request for some form of assistance you'd get it, there's certainly no obligation to do so.
Higher than mountains and deeper than sea? One should not be an emotional fool when it comes to diplomacy and international relations. If russians are going to finance the pipeline, they have something to gain and not because they really want to help you. If chinese have pulled out, they must have feared to loose something with the deal. Its simple business!
As far as a mention of India is concerned in some comments, We have always been non-aligned in our diplomacy when it comes to big economies around the world. India didn't scrap the oil deal with Iran rather, we are also building two road networks in Iran to connect Chabahar with central asian countries. We defied US on this because it is our key interest for growth. Rather then earning gratuity for your strategic location, why doesn't the govt/army works in tandem with India, China to achieve growth. "Growth brings education and education brings further growth". Since you have opened all your cards with china, china has an advantage here to decide quickly on any pakistan related issue/deal. They know what your reaction will be and how far you can go.
@BruteForce: it is all propaganda. Islam is Pakistan's greatest resource. We do not care how big US economy is, Allah will always take care of us, just as we are now blessed with his mercies. Wait till the the Caliphate takes over the world, even if it takes a million years.
Ohhh the Friendship Higher than Himalayas and deeper than Pacific is now buried under the Indian Ocean ??? There is no free Lunch ... Now pakistan is becoming the suge of China ..after they were ditched by USA and Saudi..
All weather friendship blown away by US storm !
All this is a foregone conclusion when SBP bailed out long time ago publicly. How will any foreign investor invest in a project without the central bank involvement? ET should interview the SBP governor and finance secretary and write a detailed news worthy article, rather than merely quoting the foolish gibberish from the political side.
Unless PAK raises the $ billion from domestic private capital and develops all the technology and manpower from domestic resources, and finds a domestic insurance company to underwrite the pipeline, this pipe line is not going anywhere.
Those people familiar with a bit of international politics know that this project would never see the light of day but our ignorant people in Pakistan keep hoping on China which can never annoy USA.
Of course nobody will act as financial conduits for the project!
What Pakistanis, in their blind hatred, have failed to realize is that US is still the biggest Economy in the World by quite a margin. It is more than double the size of China's GDP. US and EU combined will account for well more than half of World's GDP.
As a result a joint US and EU sanctions means World sanctions. In this globalized World that means you dont have to wage war to hurt someone, just sanction them.
No bank or financial institution will agree to act against the US and EU sanctions. Heck, Pakistan's own banks will refuse to do it.
I can easily see the scenes in 2014 when US exits Afghanistan. A US sanction will wipe of Industry in Pakistan in just a matter of days. Banks will collapse, money coming in will dry up.
To put things in perspective, Pakistan is a $200 Billion Economy, while US is a $14 Trillion dollar one, 70 times as big as Pakistan's.
@usmanx what a sheikhchilli moment!!
We may as well agree tp the Russian offer (http://www.tehrantimes.com/economy-and-business/95608-russia-offer-to-finance-pak-iran-gas-pipeline-) and also http://tribune.com.pk/story/338091/pak-iran-gas-pipeline-russia-wants-contract-without-bidding/
@Usmanx Excellent observations my friend. My only slight qualification is regarding the shrewdness of the Chinese. They have taken massive hits on their US dollar (mainly Treasury bond) investments, which only now are creeping upwards in value. Accepting the Russian offer would also show the Chinese that they are not indispensible. And about time too.
If the US would put financial bans on companies cooperating with Iran then no company would end up doing business.
This gas pipeline project will come to halt now. You think other companies will risk destroying their businesses?
@Ajit Harisinghani: You sure that it is tea you are drinking? Maybe you missed the headlines about American pressure on India not to go ahead with the project.
@usmanx: "strategic partnership" with China? The evidence of what it would be like is right here in front of you.
This is a huge cloud over the all-weather friendship. Why did China have to rain on Pakistan's parade? It is obvious that without American blessing, nothing moves in this world. Not even China has the courage to take on the US in a head-on confrontation.
How do you like what happens to existing pipelines in Balochistan now? IP pipeline will be just another bigger, more exciting target.
Why not let India finance it and even build it? Both India and Pakistan are friends of Iran and can (with a little common sense) be friends with each other and help each other. Just a thought as I sip my morning tea in Pune.
there are no friends in International Politics.. what matters is business and national benefits. Chinese are shrewd businessmen who knows nothing but their own profits and they have used is market of 180 million people to their advantage. We in Pak historically have given all our assets in a platter free of cost to the chinese. But situation in so worse, that even these guys are backing down.
Give order to the steel mills of Pakistan to make nothing but the pipes. Fund it via local banks. This project has to built at all cost to get cheap oil and to remove the foreign influence by US and Saudia on Pakistan.
China likely didn't back off because of pressure but probability of returns. The threat of Israeli pre-emptive attack on Iran and the ensuing war makes any multi-billion dollar investment somewhat risky. The Chinese are shrewd businessmen and strategists.
Pakistan should be equally shrewd, call the US bluff, and let Iran finance the pipeline itself and barter. Even if Israel disrupts IP -- at some point the pipeline would be back 'online' and Pak would have the infrastructure to capitalize on it.
At the same time, Pak should tell the US it wants to pursue TAP-- and they should be the one to build it.
Upon completion, both pipelines oil should be exported to the Chinese at a discount and the Indians at a premium. The Chinese for strategic partnership, The Indians for profit.
It’s wake up call for Pakistan. When push comes to shove all weather friend China picked USA over Pakistan. Since Pakistan does not have the money to finance or know how the project is a non starter.
Where are brooothers saudia and turkry, and all weather enemy india to help us.
All those who think China will launch a war on west in case some Western country launch one on Pakistan need to read this. Turns out, China wouldn't even finance a gas pipeline if West opposes it, and rightly so, why should it?