Iran withdraws $500m gas pipeline loan to Pakistan

16 December 2013 07:36  [Source: ICIS news]

KARACHI (ICIS)--Iran has withdrawn a planned $500m (€365m) loan to Islamabad to build part of a multi-billion dollar gas pipeline inside Pakistani territory, a senior Pakistani petroleum ministry official said.

“Iran has expressed its inability to provide the $500 million funding to build Pakistan's portion of the Iran-Pakistan gas pipeline due to acute financial constraints  following US sanctions,” the official, who asked not to be named, said.

“They also told us that Iran has no obligation to finance the Pakistani side of the project.”

Iran had offered earlier two tranches of $250m each to build Pakistan's portion of the gas pipeline.

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.

Iran has already invested over $2bn to construct the Iranian side of the pipeline. But there are serious doubts about how Pakistan would finance the $2bn needed to complete the pipeline in its territory.

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 up to $3m per day to the other party.

The official said Iran has also complained that Pakistan has done little to construct its own section of the project.

“The Iranian side has, however, agreed not to penalize Pakistan for failing to meet the current deadline, but agreed to fix a new deadline based on realities,” the official added.

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/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.

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

($1 = €0.73)

By: Aamir Ashraf

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