Pakistan seeks $2bn from Iran for gas pipeline project

29 October 2013 11:25  [Source: ICIS news]

Work on a gas pipelineKARACHI (ICIS)--Cash-strived Pakistan has sought $2bn in financing from Iran to build its side of a controversial gas pipeline that may risk US sanctions if went ahead, petroleum minister Shahid Khaqan Abbasi said on Tuesday.

“They (Iran) initially offered $500m (€360m) for the project but we have asked for $2bn for the construction work,” Abbasi told ICIS in an interview.

The Iran-Pakistan gas pipeline, projected to cost $7.5bn, is aimed to export a daily amount of 21.5m cbm of Iranian natural gas to Pakistan. The price of natural gas is $12 per MMBtu, if crude oil price stands at $100 per barrel in the international market. The gas price has been linked with the Japan Crude Cocktail price.

The Iranian side of the project is almost complete, but Pakistan has run into repeated problems paying for the 780-km (485-mile) section to be built on its side of the border.

Abbasi stated that the preparatory work was complete, but Islamabad is facing funding issues to complete the project.

“Our options are very limited, we know project funding from the West is not available because of the US (pressure),”  Abbasi said, while adding: “raising funds from the international market through bond issue is an expensive proposition giving the country’s economic condition.”

Abbasi said Pakistan will either raise funds from the local market or look towards Iran for project financing.

“We will wait for Iranian response ($2bn funding request) to exercise our next option for the project,” he added

Abbasi said Pakistan does not want to shelve the Iran-Pakistan gas pipeline project since the country needs energy resources urgently.

Pakistan has to complete the project before December 2014 deadline otherwise, according to the agreement between the two countries, whichever side is responsible for a delay would have to pay a heavy penalty of $3m per day to the other party effective early next year.

Pakistan sees the project easing its chronic gas shortages, despite threats of US sanctions.

Pakistan’s gas shortage reaches crisis levels during the winter, when all compressed natural gas (CNG) stations, which fuel most vehicles in urban centres, in the central Punjab province will be shut down from November to January. Many Pakistanis have converted their cars to run on CNG, depending on it as a cheaper alternative to fuels like petrol and diesel.

Abbasi said that so far the US has not talked about this pipeline with Islamabad at any level.

But he accepted that Pakistan can invite international sanctions upon itself if it goes ahead with the project.

“We cannot rule out the possibility of any international restriction in case of implementation of the gas pipeline deal with Iran,” he added.

Iran has the second largest gas reserves in the world but has been strangled by a Western embargo that has seen its crude exports slashed by half in the past year. It currently produces around 600m cbm of gas per day, almost all of which is consumed domestically due to lack of exports.

Its only foreign client is Turkey, which buys about 30m cbm of gas per day.

Abbasi said Pakistan will renegotiate the gas price with Iran 12 months before the project comes on stream.

“Once the project is completed we will definitely ask Tehran to review the price of gas under the right that Pakistan has in the gas deal signed between the two sovereign countries,” he added.

By: Aamir Ashraf

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