IP gas pipeline: Contract to be awarded to Iranian Tadbir Energy on Monday

Cabinet’s go ahead and waiver of PPRA rules clears way for award of contract.

After the cabinet’s go-ahead to the construction of the Iran-Pakistan (IP) gas pipeline project, setting aside pressure from the US, Pakistan and Iran look set to finally ink an agreement for the award of contract to a private Iranian firm which will lay Pakistan’s portion of the IP pipeline.

The cabinet, in a recent meeting, has okayed a waiver of the Public Procurement Regulatory Authority (PPRA) rules in order to award the contract directly to the Iranian firm. The agreement will be signed in Islamabad on Monday (tomorrow).

“After Russia and China backed out of the project due to US pressure, Pakistan has decided to avail Iran’s offer for financing and constructing Pakistan’s portion of the pipeline,” a senior government official said.

Pakistani public sector firm Interstate Gas Systems and private Iranian firm Tadbir Energy will sign the contract. Iran has designated a ‘clean’ private company to sign a direct contract under the Iran-Pakistan gas supply project, for which Tehran is also extending a $500 million loan. Tadbir Energy faces no sanctions from any foreign government. It is controlled by the Imam Khomeini Foundation, one of Iran’s largest charitable groups.

“Pakistan and Iran have already signed an inter-governmental cooperation agreement. The Iranian firm is now formally being awarded the contract,” sources said, adding that the Iranian firm will undertake all engineering procurement construction work for the first segment starting from the Iran-Pakistan border for around $250 million.

Tadbir will also undertake the second segment of the project, and will increase the financing facility by allocating up to $250 million to the project, subject to discussions regarding its involvement in the distribution of gas in Pakistan later on. It has also agreed to provide and assist in arranging $250 million as supplier credit and any additional financing for the second segment. The Iranian firm will act as the lead contractor along with the nominated local subcontractor(s).

The total cost of the project is expected to come to around $1.5 billion. Iran will provide $500 million, while the remaining amount was supposed to be generated through the Gas Infrastructure Development Cess (GIDC). However, the Islamabad High Court recently declared the levy of this cess illegal, and directed the government to reimburse amounts collected to gas consumers. “Therefore, the government may face some problems in generating the remaining funds,” sources said.

As US sanctions have put problematic hurdles in the way of making payments to Iranian firms, the two sides have drawn up a plan to finance the gas pipeline on Pakistan’s side without Islamabad transferring funds to Tehran.

“Pakistan will not pay any money to the company; instead, the Iranian government will pay $500 million directly to the firm for the construction of the pipeline,” a source said.

The project envisages gas inflows of 750 million cubic feet per day by the end of December 2014, which will be consumed by power plants to generate around 4,000 megawatts of electricity.

The IP pipeline engineering and project management consultant, who was appointed in April 2011, has completed work on a bankable feasibility study, interim front-end engineering design, and a route reconnaissance survey.

Published in The Express Tribune, February 3^rd, 2013.

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