In an apparent snub to mounting US pressure, Pakistan has awarded the contract of building its portion of the multibillion-dollar Iran-Pakistan gas pipeline to an Iranian firm.
This comes as President Asif Ali Zardari met with his Iranian counterpart Mahmoud Ahmadinejad and supreme leader Ayatollah Ali Khamenei in Tehran on Wednesday.
Iranian firm Tadbir Energy has been awarded the contract to construct Pakistan’s portion of the gas pipeline, sources told The Express Tribune. The initialisation of the contract took place during a recent visit of a Pakistani delegation to Tehran. The pipeline construction will be formally launched on March 4 on the Pak-Iran border.
The Pakistan cabinet has already approved a waiver of the Public Procurement Regulatory Authority rules in order to award the contract directly to Tadbir Energy.
“After Russia and China backed out due to US pressure, Pakistan decided to avail Iran’s offer for financing and constructing Pakistan’s portion of the pipeline,” a senior government official said.
Sources added Pakistani public sector firm Interstate Gas Systems (ISGS) and Tadbir Energy initially signed the contract in Tehran, and now the ISGS board will endorse it. Iran designated Tadbir Energy to work on the project for which Tehran is also extending a $500 million loan.
The firm faces no sanctions from any foreign government. It is controlled by the Imam Khomeini Relief Foundation, one of Iran’s largest charitable groups.
The neighbours had already signed an inter-governmental cooperation agreement and the firm has now formally been awarded the contract. Sources added that Tadbir Energy would undertake all engineering, procurement and construction for the first instalment starting from the border at a cost of around $250 million.
Tadbir Energy will also undertake the second phase of the project, and will increase the financing by allocating a further $250 million to the pipeline 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 phase. The firm will act as the lead contractor along with the nominated local subcontractor(s).
The total cost of the project is expected to be around $1.5 billion. Tehran will cough up $500 million, while the remaining $1 billion will be generated through the Gas Infrastructure Development Cess (GIDC).
With Washington slapping Tehran with a raft of sanctions that have hurt Iranian companies’ ability to do business and creating hurdles in making payments to them, Islamabad and Tehran have drawn up a plan to finance the pipeline on Pakistan’s side without the former transferring funds to the latter.
“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 project’s engineering and management consultant, who was appointed in April 2011, has completed work on a bankable feasibility study, an interim front-end engineering design, and a route reconnaissance survey.
Project must go ahead: Khamenei
In Tehran, supreme leader Ayatollah Ali Khamenei told President Zardari that the gas pipeline project must go ahead despite US opposition.
“The Iran-Pakistan gas pipeline is an important example of Tehran-Islamabad cooperation, and despite hostilities towards the expansion of ties we must overcome this opposition decisively,” Khamenei told Zardari, his office reported.
“Accessing safe energy source is the first priority for any country including Pakistan. In this region, the Islamic republic is the only nation that has safe energy resources and we are ready to provide Pakistan its energy needs,” Khamenei said.
President Ahmadinejad told Zardari that, “building the gas pipeline between Iran and Pakistan is a great and important event, and it serves the two nations’ interests,” the president’s office reported.
“I believe that building this project is very beneficial for both sides and we support all the work carried out so far,” Zardari said in talks his Iranian counterpart.
“The international and regional players have tried in vain to prevent an expansion of Iran-Pakistan ties but the people have learnt how to act against enemies of Islam,” he was quoted as saying.
Islamabad has said it will pursue the project regardless of US pressure, saying the gas is needed to help Pakistan overcome its energy crisis that has led to debilitating blackouts and suffocated industry. Iran has almost completed the work on 780-kilometre pipeline in its territory.
“There are impediments in view of the US opposition to the project but we are determined to complete it to meet our fast-growing energy requirements,” said one government official on condition of anonymity.
(With additional input from AFP)
Published in The Express Tribune, February 28th, 2013.