Chinese consortium abandons Iran-Pak gas pipeline

Islamabad: A consortium headed by a top Chinese bank has backed out from providing financial advisory services for the Iran-Pakistan gas pipeline project apparently due to the US opposition to the venture, forcing Islamabad to look for alternative financing options. The withdrawal of the consortium led by the Industrial and Commercial Bank of China (ICBC) figured at a meeting of the Economic Coordination Committee of the Cabinet that was chaired by Finance Minister Abdul Hafeez Shaikh yesterday. The financial adviser is responsible for arranging funds for the 800 km pipeline inside Pakistan at an estimated cost of $1.5 billion. Petroleum Secretary Mohammad Ejaz Chaudhry informed the meeting that the consortium’s leader had “run away from the project”, the Dawn newspaper quoted its sources as saying. [caption id=“attachment_244031” align=“alignleft” width=“380” caption=“Pakistan’s Prime Minister Yousaf Raza Gilani (R) speaks to Iranian President Mahmoud Ahmadinejad at a meeting in Islamabad to discuss a project to build a $7.6 billion gas pipeline in 2008. Reuters”] [/caption] “It is apprehended that a probable reason for not signing the agreement (to act as financial adviser for the project) till date could be geopolitical situation in the region (sic),” said an official document presented at the meeting. The Cabinet committee formed a new panel to review alternative options to arrange funds for the troubled gas pipeline project. In recent weeks, top US officials have urged Pakistan not to go ahead with the pipeline in view of Western sanctions on Iran. However, Pakistani officials like President Asif Ali Zardari have said they are determined to push ahead with the project as it is in the country’s interest. A “top class financial adviser” had been appointed for the project through international competitive bidding and a contract had been signed by Pakistan’s state-run Inter-State Gas Systems with Habib Bank and Ernst & Young Ford Rhodes Sidat Hyder (EYFRSH), two other members of the advisory consortium, in the first week of January. However, the Industrial and Commercial Bank of China had delayed the signing of a formal agreement. Now, Habib Bank and the EYFRSH too were not giving a clear response, the Cabinet committee was informed. “The Petroleum Ministry informed that the existing parties of the ICBC and Habib Bank Limited are showing less interest in the Iran-Pakistan project, so the Economic Coordination Committee may go for other options,” said an official statement issued after the meeting. The “front-end engineering design” feasibility study and a detailed route survey were to be conducted by a consortium comprising ILF of China and National Engineering Services Pakistan, and were expected to be completed by June. On the basis of the study and the survey, bids are to be invited for the 800 km pipeline from the Iranian border to Nawabshah in Pakistan. The project involves a debt-equity ratio of 70:30, with the government having majority share in equity. Tender documents have been issued to pipeline suppliers and contractors so that the contracts can be executed by the third quarter of this year. The contracts will form a major portion of the funding requirement for the project. As an alternative to the arrangement with the Chinese bank, experts have suggested that the government should route an Infrastructure Development cess recently imposed on gas consumers to Pakistani banks, who could then create a fund for the pipeline. Estimates suggest that the cess will be sufficient to meet the project’s funding requirements. The Economic Coordination Committee was requested to allow the cancellation of the contract with the Chinese bank and to approach the second bidder, comprising the United Bank, Burj Capital Pakistan, Eco Trade Development Bank, Fieldstone Group and Islamic Corporation for Development of Private Sector, to sign a contract to provide debt and private equity for the project on similar terms. The Committee was urged by officials to consider government-to-government offers from China, Russia and Iran for providing funds for the project. Iran has offered $ 300 million and Russia has offered to provide funding if the pipeline building contract is given to its companies without bidding. To accept these options, the government will have to bypass the Public Procurement Regulatory Authority’s rules. The Economic Coordination Committee formed a panel comprising the ministers for petroleum and power, State Bank governor, deputy chairman of the Planning Commission and secretaries of economic affairs, finance and petroleum to prepare recommendations within four days so that work on laying the pipeline could be started by September to meet the completion deadline of December 2014. According to a contract signed in 2009, Iran will supply 750 million cubic feet of gas a day from its South Pars gas field to Pakistan. PTI