8 - 14, 2011

Pakistan plans to finalize an engineering and procurement deal for the construction of the Iran-Pakistan (IP) gas pipeline project with China, which may also provide financing in line with the growing energy cooperation between the two countries.

Last week, a visiting Pakistani delegation, led by federal water and power minister Naveed Qamar in Beijing reportedly sought investment and offered the contract for the IP gas pipeline to China.

Germany-based consultancy firm ILF is conducting a route survey for the $1.25 billion Pakistani portion of the pipeline and will soon be completing its work, after which the engineering contract will be awarded.

Last year, Islamabad and Tehran signed an export contract, which commits the Islamic republic to supplying its eastern neighbor with natural gas from 2014.

The IP gas pipeline project will reportedly be completed by 2012, two years ahead of schedule. Pakistan and Iran are undertaking the $7.5 billion IP gas pipeline despite the US opposition and without India's participation.

Former government of President Pervez Musharraf had floated a proposal, asking China to import Indian share of the gas after Delhi pulled out of the project.

Naveed Qamar was recently on a visit to China to attend an important meeting of Pakistan-China joint energy working group. He met with Liu Tienan, China National Development Reform Commission's National Energy Administration Administrator. They agreed that existing energy projects would be consolidated and efforts made to expedite their completion and to arrange financing.

Pakistan is desperate for new energy sources and needs gas to feed its power sector as it faces a shortfall of up to 5,000 megawatts per day during peak hours in summer.

Local analysts believe that a land-based IP pipeline project would be four times cheaper than any other option of energy resources, while the country could also earn about $200-$500 million annually in transit fees.

The construction of IP pipeline was delayed because of US opposition, lack of funds and worsening law and order situation in Balochistan.

Pakistan has invited expressions of interest (EOI) from national and foreign banks for the construction of a proposed $1.2 billion pipeline, while Iran is said to have almost completed construction of its portion of the pipeline.

The Inter State Gas System (ISGS), a company set up by the government to act as project manager, has sought EOI for the multi-billion IP pipeline project. EOI can be submitted by August 20, the deadline set by the ISGS.

"ISGS is inviting EOI from reputable/international banks Íto act as financial adviser to assist ISGS in arranging capital (debt and equity) for the project," Reuters cited the ISGS as saying in the document. "The prospective consortia, if any, may include multiple banks along with other non-banking enterprises, but each consortium shall identify one bank as the lead adviser."

Last month, Petroleum Minister Dr. Asim Hussain disclosed that the IP gas pipeline project will be completed ahead of schedule.

"Iran has completed its work on laying pipeline while Pakistan would resume its work within six months," APP reported Dr Asim as saying. "Our dependence on Pak-Iran pipeline was very high and there is no other substitute at present to meet the growing demand of the energy."

Iran has promised energy-deficient neighbor a transfer of natural gas through the IP gas pipeline by the end of next year during a visit to Tehran by President Asif Ali Zardari last month. In a meeting with visiting Zardari, Iranian President Mahmoud Ahmadinejad said that the gas pipeline from Iran to Pakistan would hopefully become operational by the end of 2012.

The IP gas pipeline, already completed on the Iranian side with the over 1000 kilometer pipeline already in place, has apparently been one of the reasons for Zardari's short visit to Tehran last week.

Speaking at the National Assembly's Standing Committee for Petroleum and Natural Resources meeting, Petroleum Secretary Ejaz Chaudhry recently informed that construction work for laying 750-kolometre-long pipeline in the country to import natural gas from Iran will start by the end of November.

Under the IP pipeline construction plan, a 42 inches diameter pipeline would be installed to connect Balochistan, Sindh and Punjab through the set route Khuzdar to Karachi with cost of $1.5 billion, while main pipeline would continue toward Multan with joint venture of major gas distributors Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company (SSGC).

Several companies have expressed their interest to build IP pipeline, however a consortium of SNGPL and SSGC will construct the pipeline section in Pakistan, while National Iranian Gas Company (NIGC) would build the project section in Iran.

On Pakistan side, the National Engineering Services Pakistan (Nespak) and ILF Germany have started work on the feasibility study of IP gas pipeline project.

Pakistan has settled all issues relating to IP gas pipeline project with the Iranian authorities, including gas sale and purchase agreement (GSPA) and third-party certification for uninterrupted supply of gas from the source field to Pakistan for 30 years.

IP project is crucial for Pakistan to avert a growing energy crisis, as the project would help generate around 5,000 megawatts of electricity, which is equivalent to present peak shortage of power in the country. The energy crisis has resulted in the closure of various industrial units across the country.

Financing and security of the pipeline are however the two major issues confronting Pakistan for implementation of the IP project. US, which is opposed to the project, is not willing to finance this project.

The US has also held back $800 million to Pakistan, or nearly a third of its total security aid after Pakistan expelled American military trainers and imposed other limits on visas for US personnel.

Tensions heightened between Islamabad and Washington over the killing of Osama bin Laden in May in a Pakistani town by American Special Forces. US lawmakers want the billions in American aid sent to Pakistan reviewed amid suspicions that elements of its security forces protected bin Laden. Islamabad is trying to deepen ties with Beijing as an alternative to increasingly fragile relations with the United States.

The pipeline was originally planned to extend from Pakistan to India in 1993. The United States has been opposing the project and it discouraged India and Pakistan from any deal with Iran because of Tehran's nuclear ambitions. After India's withdrawal in 2009, Beijing showed interest in building an Iran-Pakistan-China (IPC) pipeline that provides it a chance of getting a secure overland gas pipeline.