IP GAS PIPELINE PROJECT DISCUSSED AT BOAO

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Apr 9 - 15, 20
12

Iran-Pakistan (IP) gas pipeline project remained under discussions of the leaders from Pakistan, Iran, and China at Boao on the sidelines of the Boao Forum for Asia Annual Conference held on April 2.

Prime Minister Yousuf Raza Gilani on April 1 sought China's cooperation on the IP gas pipeline project in the aftermath of withdrawal of a consortium led by a Chinese bank from the project amid pressure from the United States. The Gilani sought Chinese help for IP pipeline project during a meeting with Chinese Executive Vice Premier Li Keqiang at Boao.

Presently, Pakistan has decided to negotiate a $1.5 billion financing and construction contract for IP pipeline with Russia and crucial talks between the two sides are expected to be held this week. During his meeting with Prime Minister Syed Yousuf Raza Gilani on the sidelines of Boao Forum, Iran's Vice President, Mohammad Javad Mohammadizadeh, urged Pakistan to expedite work on IP pipeline from its side, saying that Iran had completed its work on the project.

The analysts believe that Islamabad could go ahead with the IP project if it strikes a government-to-government deal with China or Russia against the increasing pressure from the US, which has threatened the country that a gas pipeline project with Iran could cost dearly to its already shaky economy. China may also join the project after entry of Russia in the IP gas pipeline, which could be extended to western China via Karakorum highway.

Pakistan and Iran reiterated their commitment to complete their trans-border gas pipeline project despite US opposition and pressure on the sidelines of Boao conference. The Gilani- Mohammadizadeh meeting at Bao on April 1 was the first high-level contact between the two countries after a consortium led by the Industrial and Commercial Bank of China (ICBC) backed off last month from providing financial advisory services for the project apparently because of US opposition to the plan.

Pakistan needs $1.5 billion to lay the pipeline on its side of the border and for the connectivity network. The petroleum ministry on March 13 informed the Economic Coordination Committee (ECC) of the Cabinet headed by Finance Minister Hafeez Shaikh that the Chinese bank refused to sign the financial advisor contract despite being the lowest bidder. The Financial Advisor contract was signed by the gas authorities on January 6, 2012 with other parties of first consortium including Habib Bank Limited (HBL) and Ernst & Young Ford Rhodes Sidat Hyder except the ICBC.

The country is left with at least two financing options to build IP pipeline after the Chinese bank backed off from financing the project. First, the government could set up separate accounts in Pakistani banks to collect a gas development cess levied to build the pipeline. Second, it may approach the China, Russia, or Iran for signing government-to-government contract for construction of the pipeline in its territory from the Iranian border. Iran has already offered $250 million assistance to build the pipeline.

The United States has pressed Pakistan to drop the IP pipeline project because of Iran's nuclear ambitions. The West has imposed sanctions on Iran and multinational companies doing business with Iran.

The tension between Islamabad and the US on IP pipeline project does not bode well for Pakistan's economy. Pakistan-US relations plunged in deep crisis following the November 26 NATO attack on Pakistani posts near Afghanistan border that killed two dozen Pakistani soldiers.

During talks on restoration of Nato supply lines with US officials last month, Islamabad urged Washington to either help Pakistan meet its energy needs or let it go ahead with the pipeline project. The country has not yet received any firm commitment from the US on the energy issue.

Washington is presently trying for tougher economic sanctions against Iran on its nuclear plans. US Secretary of State Hillary Clinton on February 29 warned Islamabad of the consequences of pursuing such a pipeline for the country' weak economy, as the project could invoke US sanctions.

Islamabad has reiterated its stand on the IP pipeline project stating that Chinese bank's withdrawal will not affect plans to import gas from Iran.

The financing has come as the key issue which could cause an overall delay in completion of the IP project. After withdrawal of a consortium led by ICBC, the second consortium led by Pakistan's United Bank Limited (UBL) is likely to back out of the IP gas pipeline project. The second consortium comprises UBL, Burj Capital Pakistan (Private) Limited, ECO Trade Development Bank Limited, Fieldstone Group and Islamic Corporation for the Development of the private sector.

A Pakistani delegation is scheduled to visit Moscow this month after the sub-committee formed by the Economic Coordination Committee (ECC) of the cabinet in its meeting on March 13 decided to negotiate a deal with Russia. Moscow already offered Islamabad to finance the pipeline project if its energy giant Gazprom was awarded the contract without bidding during a visit of Foreign Minister Hina Rabbani Khar to Moscow in February. The country will have to waive Public Procurement Regulatory Authority (PPRA) rules if it decides to award the contract for laying pipeline in its territory to Gazprom.

Pakistan is expected to complete a detailed route survey for laying the gas pipeline from Iranian border close to the Makran Costal Highway in southwestern Balochistan province to its off-take point at Nawabshah, a town in Sindh province in the current month, covering a distance of about 800km.

The project implementation and construction is targeted in four years and the first gas flow will be available by the end of December 2014. The pipeline will start from the onshore gas processing facility at Assaluyeh in Iran, to traverse a distance of 1,150km up to the Iran-Pakistan border, which will be built and operated by Iran.

A trio of Russia, China, and Iran in collaboration with Pakistan is poised to defy the US pressure vis-a-vis construction of IP gas pipeline, a project fiercely being opposed by Washington. Pakistan is looking to Beijing and Moscow, which are currently in a state of cold war with Washington.