Iran
offers financial aid to build Pakistan
pipeline By Syed Fazl-e-Haider
KARACHI - Iran has agreed to provide
US$250 million to help Pakistan build its end of a
gas pipeline between the two countries after
Pakistani institutions, including Oil and Gas
Development Co Ltd (OGDCL) and National Bank of
Pakistan (NBP), refused to provide funds for the
project because of US sanctions imposed against
Iran at the beginning of this year.
Domestic funding for the project is
crucial because the US and international sanctions
against Iran are likely to block Western and
multilateral funding. Deeply indebted Pakistan had
earlier planned to borrow $300 million from local
banks and $210 million in equity from state-owned
companies.
State-owned OGDCL, Pakistan's
largest petroleum company, fears that financing an
Iranian project could prompt the withdrawal
of foreign shareholders,
while NBP is concerned that involvement would lead
to closure of its foreign branches due to US
sanctions. The United States has warned
Islamabad that the gas pipeline project could
violate US restrictions on major financial deals
with Tehran, imposed as part of efforts to have
Iran abandon its nuclear program, which the US
says will lead to nuclear weapons.
Under a
sovereign-guarantee agreement related to the Iran
pipeline project, Pakistan is bound to start gas
flows in 2014 or face a penalty the equivalent of
$8 million per day.
Russia has shown
interest in financing the IP project if Pakistan
were to award a $1.2 billion pipeline contract to
its energy giant, Gazprom, without going into a
bidding process.
Another possibility is to
approach China National Petroleum Corp for
financing of the project.
Asim Hussain,
Special Assistant to the Prime Minister on
Petroleum and Natural Resources, on February 28
told the media in Islamabad that Iran had offered
to provide $250 million financing for laying the
pipeline infrastructure, against $500 million
asked for by Islamabad.
Islamabad and
Tehran are firmly committed to implementing the
project despite US opposition. Under a $7.6
billion deal the two countries signed in June
2010, Iran is to export 21.5 million cubic meters
per day of natural gas to Pakistan by the end of
2014.
Last year, Pakistan awarded a $55
million consultancy services contract for IP
pipeline to German firm ILF Engineering Services,
which is working in collaboration with the
National Engineering Services of Pakistan.
The Gazprom financing proposal came during
a four-day visit to Moscow by Foreign Minister
Hina Rabbani Khar to Russia last month.
"If Pakistan accepts the demand of Russia
and awards the contract to Gazprom, the largest
explorer of natural gas in the world, Moscow will
also provide financing for the project," The
Express Tribune reported a Pakistani official as
saying. "However, Pakistan has not shown any
willingness to grant the contract without inviting
bids from competing parties, which will violate
its Public Procurement Regulatory Authority
rules."
In 2010, the country sought
Chinese investment by offering an engineering and
procurement deal for the construction of the
pipeline project to China, the major buyer of
Iran’s oil and gas. China had shown interest in
joining the pipeline project, originally planned
to supply Iranian gas to India via Pakistan, after
India's withdrawal in 2009.
China is set
to be the real beneficiary of sanctions imposed on
Iranian oil by the West, as it will be able get
more oil from Iran at lower rates. One aspect of
China joining the pipeline project would be the
possibility of it being extended to China's
northwestern province of Xinjiang.
The
former government of president Pervez Musharraf
asked China to import what would have been India's
share of the pipeline gas pipeline after India
pulled out. The Chinese link could be laid
alongside the Karakoram Highway, which connects
Pakistan's northern region of Gilgit Baltistan
with western China.
Pakistan is keen to
import Iranian gas to alleviate shortages of gas
that are crippling industry and daily life. Its
gas shortfall is forecast by the government to
reach 2.22 billion cubic feet a day this year.
The US has offered Islamabad help in
developing a
Tukmenistan-Afghanistan-Pakistan-India (TAPI)
pipeline as an alternative to the Iran project,
and has offered to provide gas at cheaper rates
from US energy firms. The US has also threatened
Islamabad with economic sanctions if work on IP
project is not stopped.
Beyond the gas
pipeline, Iran has said it can provide 80,000
barrels of crude oil to Pakistan on a three-month
deferred payment. A Pakistani delegation is
scheduled to visit Iran next week to discuss the
crude oil supplies on credit.
"The
deferred payment facility should be
forward-looking, otherwise the disparity between
the rupee and dollar can hurt us," The Express
Tribune reported Asim Hussain as saying.
Pakistan's currency is steadily weakening
against the US dollar, with the rupee trading at
around 90 to the dollar after losing more than 5%
against the US currency since last June.
Islamabad is also considering a proposal,
currently in the process of finalization, to use
wheat exports to Iran to pay for oil imports. Iran
agreed last week to import one million tonnes of
wheat and 200,000 tonnes of sugar in exchange for
export of fertilizer and iron ore to Pakistan.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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