IP gas line project: MoP&NR presents four options to govt for funds

The IP project has entered its implementation phase and work on Front End Engineering and Design (FEED), feasibility and detailed route survey has already started by the Consultant (M/s ILF/ NESPAK, JV). The feed and feasibility report is scheduled to be completed by June, 2012. Thereafter, bids shall be invited from EPC contractors for construction of the pipeline.

The source said that the total cost to be incurred on the above mentioned activities will be approximately $ 1.5 billion.  It is decided by the Steering Committee /Sub-Committee of the ECC and ECC of the Cabinet that a debt to equity ratio of 70:3 0 will be maintained with GoP having majority share in the equity portion of the project. A top class Financial Advisor will be appointed to arrange funding for the IP project.

Pursuant to the directions of SC and ECC, a top class Financial Advisor has been appointed through International Competitive Bidding (ICB) following PPRA laws. The contract with Financial Advisor has been signed by ISGS on January 6, 2012 along with other parties except Industrial and Commercial Bank of China (ICBC) which is in the process of taking due approvals to sign the agreement.

However, it is apprehended that a probable reason for not signing the agreement till now could be geo-political situation in the region, the sources maintained

According to sources tender documents have been issued to the line pipe suppliers and the tender documents for EPC contractors, compressor station suppliers, etc. are being finalised and will be issued within the next couple of months. These contracts are expected to be executed within second and third quarter of this year. Apart from any ancillary services, the contracts will account for a major portion of the overall funding requirement of the IP project.

"In case of any delay in provision of requisite funding, contracts with suppliers cannot be executed and may result in overall delay in completion of the IP project," the sources maintained.

Keeping in view on ground situation, following alternative options to meet funding requirements may be considered:

A - Funding through the Gas Infrastructure Development Cess: Federal government has started collecting Cess through the Gas Infrastructure Development Cess Act, 2011, which, amongst others, is required to be utilised for or in connection with infrastructure development of IP pipeline project. Initial estimates regarding Cess suggest that funding requirements of entire IP project could be met by Cess. In view of current funding problems and the gas shortage in the country, the Cess may be routed to Pakistani Banks who would then be in a position to create a fund with GOP. The funding could then be routed to ISGS to meet financial requirements of IP project. This would reduce the overall cost of the project as ISGS will not be incurring any additional charges and would therefore help reduce the tariff for imported gas.

B -Contract execution with Second Consortium: If ICBC does not execute the contract, ISGS may be allowed to cancel their bid and approach the second consortium (United Bank Limited, Burj Capital Pakistan (Private) Limited, Eco Trade Development Bank Limited, Fieldstone Group, and Islamic Corporation for the Development of the Private Sector) for contract execution to provide Debt and Private Equity necessary for completion of the project on the same terms and conditions as agreed with the first consortium (HBL, ICBC, and Ernst and Young Ford Rhodes Sidat Hyder).

C- G to G with Govt of China and/or Russia to fund the complete project: Pakistan should approach Chinese and/or Russian government and enter into a G to G arrangement to fund the complete project including supply of the Long Lead Items (LLIs). If this option is explored, exemption from PPRA Rules may be required.

D- G to G arrangement with Iran: During the visit of Deputy President on International Affairs of Islamic Republic of Iran (5-7 February 2012), Iranian side offered to construct Iran Pakistan pipeline in Pakistan (planning, engineering, supply of pipeline, compressor stations, etc.). They offered to provide US $ 250 M towards funding for the Project. In line with the resolve of both the governments, G to G arrangement with Iran can be explored. As mentioned in Point 5(c), in case this option is exercised, exemption from PPRA Rules may be required.-MUSHTAQ GHUMMAN