Despite US pressure, the worsening energy crisis has compelled Pakistan to start work on multi-billion dollars Iran-Pakistan (IP) gas pipeline project in one go, instead of three segments, it is learnt.
Sources told Business Recorder that previously the 800 km pipeline construction was split in three segments as follows: (i) Iran-Pakistan border to Gwadar; (ii) Gawadar to Nawabshah; and (iii) Indus River crossing. However, the Steering Committee of the ECC, on the proposal of the Foreign Minister, agreed after deliberation to implement the IP project in one segment.
The meeting directed the Ministry of Finance to complete the process of government of Pakistan guarantee duly covering all associated risks of the project and Ministry of Petroleum is to issue policy guidelines to the Oil and Gas Regulatory Authority (Ogra) for tariff. The bids for construction of the pipeline from Engineering, Procurement and Construction (EPC) contractor would be invited after completion of the feasibility study and detailed route survey report in March 2012.
The meeting was informed that Front End Engineering and Design (FEED), feasibility and Detailed Route (DR) survey of the project, currently in process, is scheduled to be completed in March 2012. The meeting also decided that provincial governments would continue to provide full support and facilitation in the provision of security in view of local participation and ownership of the project. As per Engineering and Project Management (E&PM) contract, the Inter State Gas System (ISGS) is providing security to the personnel of E&PM consultants and sub-contractors with the co-operation of the respective district governments.
The meeting was informed that the salient features of the Financial Advisory Services Agreement with the Financial Advisor (FA) would include (i) the scope of assignment be based on debt equity mix of 70:30 in the project, FA will arrange debt portion, and private equity; (ii) the FA shall arrange firm underwriting commitment for debt and equity on such terms as may be agreed between FA and ISGS; and (iii) advisory fee to be paid to FA shall be 0.431 percent of project cost, which would be $ 5.36 million, based on estimated $ 1.2 billion cost of the project.
The Minister for Petroleum and Natural Resources, who chaired Steering Committee of the ECC, was quoted as saying that starting pipeline construction would give a positive signal to the potential investors and Iranian side. The Foreign Affairs Minister, Hina Rabbani Khar, said that Pakistan is committed to the implementation of the project.
Sources said that the issue of equity commitment by public sector enterprises (PSE), namely National Bank of Pakistan (NBP), Oil and Gas Development Company (OGDC), Pak Arab Refinery (Parco), Employees Oldage Benefit Institution (EOBI), and Pakistan Petroleum (PPL) was also discussed during the meeting. The NBP and OGDC expressed concern with respect to their equity participation in the project (given US, UN and EU sanctions on Iran) hurting their other operations in view of their international presence --NBP international operations and OGDC listing on international stock exchange.
The Chairman of EOBI stated that as per SOP, the institution has to solicit approval from Ministry of Finance before making any investment, whereas officials of Parco stated that they are interested in the project and, other than the circular debt issue, they have no concerns. However, being a joint venture company, they will have to consult their BoD. The Managing Director (MD) uf ISGS stated that as per his discussions with PPL, the matter is being taken up with PPL BoD.
MD of ISGS further stated that in view of the given financing timelines as required by FA, the matter of PSEs' participation is critical and needs to be resolved soonest possible. Secretary, Finance, stated that in case the PSEs are not able to invest, the government can arrange the investment through other means or investors.