IP pipeline: Pakistan looks to Gazprom for project financing

Published: October 15, 2013
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Gazprom participation in the IP pipeline will feature in a meeting of the Pakistan-Russia joint working group next month. Russia has already expressed its interest in investing in Pakistan’s energy sector. PHOTO: FILE

Gazprom participation in the IP pipeline will feature in a meeting of the Pakistan-Russia joint working group next month. Russia has already expressed its interest in investing in Pakistan’s energy sector. PHOTO: FILE

ISLAMABAD: 

As a Chinese company has distanced itself from the Iran-Pakistan (IP) gas pipeline, Pakistan is now looking to Russian energy giant Gazprom for providing necessary financing for more than a billion-rupee project.

“Russia may be the best choice for financing and constructing the pipeline,” an official said. Pakistan was willing to accept Gazprom’s offer to build its side of the pipeline, which would cost about $1.5 billion, he added. Gazprom wants its subsidiaries to engage in the project.

Though Pakistan has placed a request before the Iranian government for providing all financing for the construction of the pipeline on its side of the border, government officials believe it will be difficult for Tehran to make a commitment.

“The issue of Gazprom participation in the IP pipeline will feature in a meeting of the Pakistan-Russia joint working group next month,” the official said, pointing out Islamabad and Tehran had been going through the power transition process because of which progress on the project had slowed down.

Pakistan and Iran have to sort out technical issues to pave the way for the award of engineering, procurement and construction (EPC) contract to Iranian firm Tadbir Energy. An agreement in this regard has already been inked and will be formally signed after technical issues are addressed.

The two countries have finalised a $500 million loan deal and a high-level meeting between them is expected to be held soon to discuss the possibility of Iran providing all investment required for the pipeline. Petroleum and Natural Resources Minister, Shahid Khaqan Abbasi, is likely to lead Pakistan’s side in the talks.

A Chinese company, which had offered $500 million for the pipeline, pulled out after Pakistan refused to extend the validity of its bid.

After inviting bids from interested companies, Inter State Gas Systems, a state-owned Chinese company that handles energy import projects, had selected Panyn Chu King Steel Limited of China as a qualified bidder, which would provide pipes at the rate of $1,650 per ton including compressors. The company sought extension in the bid validity period, but the government turned down the request.

“As the Chinese company is no more interested in the venture, the government is now banking on Iran and Russia to fund the laying of gas pipeline in Pakistan,” a source said.

Iran has already committed to providing $500 million to finance the pipeline, but now the government wants Tehran to increase the credit line. Against the financing, Pakistan will award EPC contract to Iran-designated firm Tadbir Energy.

Under the project, Pakistan will import 750 million cubic feet of gas per day (mmcfd), which can be increased to one billion cubic feet. Of the quantity, the Government of Balochistan seeks 250 mmcfd for consumption at the Gwadar Port, therefore, the central government is expected to go for enhanced supplies from Iran to cater to the needs of the province.

Published in The Express Tribune, October 16th, 2013.

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Reader Comments (27)

  • Oct 16, 2013 - 12:20AM

    Although the supply of gas is an absolute necessity for energy revival but this pipeline project that started as early as 1995 with an MOU is more than a energy supply project. Stake holders that include Iran, India and China make the problems pretty complex, especially when every now and then one pulls out or decides to come back in the project. On top of all this Gazprom a Russian company that is the biggest gas extractor company in the world makes the whole issue more complex. Had this pipeline been about simple seller and buyer of gas it would’ve long been completed. But miracles do happen!

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  • Asad Khan
    Oct 16, 2013 - 1:23AM

    …..Pak & Iran should sort out some formula of 2 Billion $ worth of barter trade for the construction of IP line by themselves. This would be the best first option.

    ….Gazprom participation is a welcoming sign.

    regards,

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  • Aqil mand
    Oct 16, 2013 - 8:07AM

    Why not ask Pakistani retired Army officers ,bureaucrats and politicians for money..

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  • Hussain
    Oct 16, 2013 - 10:20AM

    If Pakistan delays the project by Dec-2013. It would have to pay penalty for defaulting on completion time.
    Looks Pro-Saudi Nawaz Sharif is committed to it.
    But How will we pay? when we aren’t able to finance.
    Looks like, IRAN-SAUDI Game being played in PakistanRecommend

  • Oct 16, 2013 - 11:26AM

    @Aqil mand: Agreed. Better still will be to aggressively collect taxes from all tax dodgers (includes a galaxy of hardcore defaulters), debt write-off’s, defrauders of state institutions, recoveries from businessmen, generals, bureaucrats, etc. This will help us cover the budget deficits and cost of IP Gas Pipeline, et al. Salams

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  • darbullah
    Oct 16, 2013 - 12:54PM

    So the Chinese master has told no?

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  • truth
    Oct 16, 2013 - 1:23PM

    No consistency in foreign policy. In Pakistan it changes on daily basis.

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  • Sonya
    Oct 16, 2013 - 1:34PM

    Why not requesting our Saudi brothers to provide some fianaces, we have seen their generosity towards Egyptian army rule, terrorists spreading Fasad in Syria and business starved American military equipment manufacturers.

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  • LalaMujahid
    Oct 16, 2013 - 3:52PM

    The only one that can build the pipeline now is KHUDA…..as pakistanis beleive that man is not wise enough..and remeber russians are kaafirs……

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  • John
    Oct 16, 2013 - 5:36PM

    Rusians will sure have to stay away from this project as of indian objection.

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  • Hedgefunder
    Oct 16, 2013 - 5:38PM

    LOL ! As if the Russians will entertain the Idea ! Is there anyone else left on this Wish List ?
    Why did the “all weather friend ” refuse ?
    This country’s Politicians simply know how to kiss other people’s ** !
    No wonder no one respects them !

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  • 3rdRockFromTheSun
    Oct 16, 2013 - 5:39PM

    Let me say the unsaid – the reason why all ‘partners’ are dropping this project like a hot potato is simple – No business would risk billions of their money given the security situation in Pakistan.

    India dropped out of the IPI because it wanted to pay for the gas delivered at the Indian border – i.e Iran would bear the risk of delivery through Pakistan, Iran wanted India to pay at the Iranian border – which meant India would have to bear the risk and cost of the delivery through Pakistan – neither India nor Iran want to bear the risk of delivery through Pakistan. It would be the same for the TAPI – India will pay for gas at its doorstep.

    Similarly the Chinese are not willing to risk being held hostage to similar delivery risks for their energy supply nor are Chinese companies willing to take part as 3rd party sub-contractors, given the threat to their employees / material (remember the Gwadar assassinations of Chinese engineers).

    Gazprom is one of the largest gas suppliers in the world – why would it risk money to a venture that only has a promise of a minor gain compared to the high costs / risks.

    The Iranians are doing their part, Pakistan has to build its part on its own; or face penalties. You, as they say, are up the creek without a paddle!

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  • Raj - USA
    Oct 16, 2013 - 7:20PM

    This is the fallout of Pakistan’s Kashmir policy. India pulled out of IPI because Pakistan was not willing to guarantee that it shall not shut down the pipeline if there is a conflict with India. May be because Pakistan was anticipating 26/11. When it was IPI, the price of gas was $6.5 / mmbtu. In addition, Pakistan would have earned transit fee from India for the gas that India may have bought. Now the price double at $13 / mmbtu and also there is no income to Pakistan from the transit fee. Security situation in Baluchistan was far better at that time than now. Also there were no US sanctions at that time and had the pipeline materialized that time, all countries, India, Pakistan and Iran would have benefited. India at least got some benefits for pulling out in the form of nuclear technology. Pakistan was the looser and it took iran along with it. Now, even if the pipeline materializes, Pakistan shall be paying more than double the price. If Pakistan does not proceed with the pipeline, it shall end up with a legal dispute and spoiled relation with Iran as Iran shall be claiming $3 million daily from Dec. 2014. Iran already feels that it has lost revenue for over 10 years because of Pakistan as India pulled out of IPI only because of Pakistan.

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  • unbelievable
    Oct 16, 2013 - 7:55PM

    Gazprom has offered to participate in IP before – the kicker is they want a “no bid” deal which is clearly against Pakistan law but definitely fits the Russia mafia approach to business. I doubt that even Gazprom would spend a Billion plus only to have the SC come in at the last minute and void the contract.

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  • syed baqar ahsan
    Oct 16, 2013 - 10:46PM

    @truth:
    if everybody in Islamabad look through American given lenses nothing will be visible accept USA so keep loosing.very unfortunate,keep loosing while watching others desire & interest.

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  • IndMus
    Oct 17, 2013 - 8:24AM

    Beggar always beggar. never change his mindset.shame.

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  • Asif khokher
    Oct 17, 2013 - 10:52AM

    Writer of this story seems to be in hurry, or does not know exactly what he is writing. 6th paragraph says “After inviting bids from interested companies, Inter State Gas Systems, a state-owned Chinese company that handles energy import projects …”; By the way, Inter State Gas Systems is state-owned Pakistani company and not Chinese. The whole context of the paragraph has been changed. I had personally attended meetings of ISGS in the past.

    Millions were spent by the GOP to prepare Frond End Engineering and a German Consultant company was hired, but now hiring Construction Contractor like Iranian or Russian Contractor just because they would be funding for it would alter all the specifications and design as they will enforce their own design in it.

    Unfortunately, this project had not been handled properly by the elected representatives due to vested interests since many years, and now it has become difficult to realize it. Security situation and American pressure is a major factor. We still have time to make this Pipeline a reality provided a firm Policy decision is taken by the Prime Minister, which does not seem to happen in the near future. Hence, such news appearing in the press are just soft efforts to keep this project alive.

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  • Jameel ur Rasheed
    Oct 17, 2013 - 10:59AM

    Inter State Gas Systems, is a state owned company of Pakistan not China!

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  • Strategic Asset
    Oct 17, 2013 - 11:50AM

    About a year ago, there was Leila from Iran who wrote the following on ET Blogs:

    One billion dollar is nothing for the government of Pakistan. Believe me when I say this. Recently a provincial government built an imported BRT system costing some third of a billion dollars in just about a year. If on province can spare in one year enough funds to build some bus stops and importing buses costing some 300 million dollars, I do not think, it is difficult for the federal government of Pakistan to raise 500 million or one billion dollars in the next two years. It is rather a small amount comparing it to Pakistan’s national GDP. It is doable and do not worry on that account.

    Wonder where she is now?

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  • genesis
    Oct 17, 2013 - 5:21PM

    Now you must figure out where else the pipe can turn and get money for this.smart people will not be suckered into these deals even if it is”all weather friendship which is as deep as the oceans and as high as the Himalayas”

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  • Sabraz
    Oct 17, 2013 - 5:29PM

    I know you may think its not feasible, get the pakistani diaspora to invest in it…

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  • Ashkenazi
    Oct 17, 2013 - 5:39PM

    @LalaMujahid:
    Soviet Russia was a communist. Current Russia is Orthodox Christianity.

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  • Ashkenazi
    Oct 17, 2013 - 5:40PM

    @unbelievable:
    Remember the US mafia which promises a lot but delivers nothing tangible. Russia at least made the steel plant.

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  • AR
    Oct 17, 2013 - 7:34PM

    The Russians can afford it . they own mobilink now. Cash generation is no problem.Recommend

  • Pankaj
    Oct 18, 2013 - 10:06AM

    Russia ? the perpetual enemy of pakistan and islam ? What about muslim ummah !

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  • Oct 18, 2013 - 11:36PM

    Pakistan always seeks help, i consider it an extreme shame for the leaders of the time for their failure.

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  • Oct 19, 2013 - 12:04AM

    These IP chaps seem to have sovereign rights ,no?

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