Russia and China appear to be losing the race for the $1.5 billion Iran-Pakistan (IP) gas pipeline project as Islamabad and Tehran have agreed to sign a $250 million loan agreement next month for laying Pakistan’s portion of the pipeline.
“We have finalised arrangements for a loan of $250 million from Iran in a deal between the two governments. The final agreement will be signed after Eid during visit of an Iranian delegation to Islamabad,” a source told The Express Tribune.
This comes despite pressure from the US, which opposes big commercial deals with Iran because of Tehran’s alleged nuclear programme. Iran insists that its programme is peaceful.
Iran has also offered an additional loan of $250 million from its commercial banks for the pipeline. Tehran will also provide material support.
According to sources, Iran will provide a total of $500 million to finance the gas pipeline and the remaining amount will be arranged by Pakistan through collection of gas infrastructure development cess, a kind of tax being paid by domestic gas consumers.
The government is expecting to collect Rs30 billion worth of cess from the consumers in the current fiscal year 2012-13.
“As US has warned foreign companies that they will face sanctions if they participate in the IP pipeline project, Pakistani and Iranian gas companies will form a joint venture to lay the pipeline in Pakistan,” the source said.
German-based firm ILF has completed engineering design of the pipeline and an interim feasibility report has put the project cost between $1.2 and $1.5 billion.
“If the project gets under way with the participation of local companies, the cost will fall,” said an official.
Iran has already offered Pakistan to lay the entire pipeline as the latter has been facing problems in attracting funds from countries like China and Russia.
Earlier, Russia and China expressed interest in financing the pipeline if they were awarded the contract without bidding, but no headway could be made apparently due to US opposition.
A Russian delegation also came to attend a meeting of the Inter-governmental Commission in Islamabad in September, with a heavy agenda and particular focus on the IP pipeline, but to no avail.
Under the project, Iran will supply 750 million cubic feet of gas per day (bcfd) to energy-deficient Pakistan. The volume can be enhanced to 1 bcfd later.
Many people believe that Iran’s offer is the best option available amid pressure from the US, which has warned that those assisting the project will face possible sanctions.
State-owned National Bank of Pakistan (NBP) and Oil and Gas Development Company (OGDC) have already backed out of the project. NBP feared forced closure of its branches in different countries while OGDC bowed to the threat of US-based investors, who said they would withdraw their investment in the company’s shares.
According to Iranian authorities, the pipeline is expected to reach the zero point at the border in the first half of next Iranian calendar year, beginning March 20, 2013.
In a statement, National Iranian Gas Company has said work has come to an end on the 56-inch seventh gas trunk line from Iranshahr, southeast of Iran, to the Pakistan border and Zahedan.
Published in The Express Tribune, October 25th, 2012.
COMMENTS (11)
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How long are you going to borrow money to feed an elephant who then on the assumption of more food is coming start to have more and more babies. Before you lied to just one elephant now you have to lie to ten and then in few days to a whole hungry herd. It's not going to end until the supplies dries off and All Hell Break Loose. We are sliding down a slippery path while the weight is increasing with speed. We must stop borrowing & stop giving a fake picture of "more is there", so people will start to see the reality & stay in their budget. Remember we are borrowing more than we can pay back and in the process just might end-up selling our kids, lands, it's future crops, mining rights and our freedom to the lenders. A borrowing person has no rights against the lender. We all know a lender is friend to no-one but to his money, and that's Ok. We borrowed not him! We could not plan for future, it's not his fault. We lied to our people, not him. The dilemma is the money being borrowed is to feed the needs of people who expanded their needs based on previously borrowed money and now the new borrowing is not to pay back past loans but to feed the spoiled masses which in turn will need more money & more luxuries. It's a vicious cycle. My last hope was India, who has now fallen for capitalist fever too. It's time all the poor third world countries stop for a moment to just think "where are we running too' exactly? Hopefully not toward our own demise, like a poor farmer who gave everything he & his ancestors made over generation to the town's lender to show off to the gossiping neighbors. And in the end even those neighbors were laughing at him when he became from land owner to just a shepherd of the lenders cattle that he used to own in past.
@Nadir: Gold.
(German-based firm ILF has completed engineering design of the pipeline and an interim feasibility report has put the project cost between $1.2 and $1.5 billion.
“If the project gets under way with the participation of local companies, the cost will fall,” said an official.)
I must say that pakistan is already short of energy and this is an important project to overcome energy need of the country.. Governement should go a head..
The economic concepts apply to a free and fair market which does not exist. The main trade is barter and efficiency is based on knowledge and careful thoughtout steps. Dig your iron ore, reduce it with whatever coal you have and make steel out of it by cleaning with oxygen blasts. Make your own refractories. and add the alloying elements like, nickel, vanadium, cobalt, Cr etc for giving toughness and corrosion resistance for long service as well as HDPE protection. Best is underground pipe with top casing, unless flood is the issue. Auto Shutoff Valves every some section to protect from blasts are needed. Pakistan supplies grain to iran for payment. The local small companies work together to build it from private capital. A totally separate transactional entity is created which does not contaminate or operate in foreign countries nor do the small local companies.
For me it will put extra tax burden on pakistani people.iran will give money and material then what will gop will contribute,if at all gop will raise rest money to build gas pipeline through additional tax from gas consumer then again what about buying gas'do then also gop will again tax consumers.If this is so then may be people of pakistan should keep money to pay additional tax/double tax you can say.
Even if Iran is willing to loan your $250 million the IP cost at least $1.5 Billion --- so maybe the author should have chosen a more appropriate title to his article.
When your industry is closing down, old friends like US cartel are found untrustworthy and have almost no options left, then you do not consider pressure, recession, currency devaluation - stop living in dreams my friends. Let's revisit the original concepts of Economics.
This seems to be for mass consumption. China and Russia would have been aware of US opposition well before they evinced interest - so it is possible that they actually didn't have any interest at all. Iran cannot afford to pay for this pipeline under the current circumstances - so the project is truly a 'pipe' dream.
Is the GOP really serious? After years on years of procrastinated delays, they are finally signing the agreement and that too for a loan. When the work will start is anybody's guess.
If China and Russia are not in the race because of US pressure, after all China is our fine feathered, all weather friend. Of course, China's domestic interests come first.
China's progress is mainly dependent on investment from USA and Europe and exports to the West. Nevertheless, Iran is our immediate neighbor and has a lot in common. Regrettably, India is missing out on a lot of material opportunity. Salams
When Pakistan does ot have the money to build the pipeline, how will it find the money to pay for the gas? Not sure Iranian leaders have heard of the concept of sunk cost.
And where will Iran get the money from? Their currency is plummeting, inflation is on the rise, the Iranian economy is in recession. Keep chasing pies in the sky!