ISLAMABAD, Sept 15: The government has asked Iran to reduce interest rate on about $500 million offered for construction of 781km pipeline inside Pakistan for delivery of 750 million cubic feet per day (MMCFD) of gas under the Iran-Pakistan pipeline project.
A senior government official told Dawn that interest rate offered by Iran was higher than the prevailing commercial rates even though Pakistan was to provide sovereign guarantee for the financing.
Mainly because of the snag involving cost of financing, he said, the process for financial close of the project estimated to cost $1.5 billion had not take off the ground as Pakistan was required to extend sovereign guarantee for it. Political transition in both Pakistan and Iran was a reason for delay in resolution of the issue.
It would be unfair to blame only Tehran for the delay because Islamabad had failed to move decisively on the matter despite completion of 100 days in office by the PML-N government, he said.
Petroleum Minister Shahid Khaqan Abbasi has obtained a list of major decisions taken by the PPP government over the last five years but has yet to decide on a clear course of action himself, according to the official.
He said there was a need to review major decisions of the PPP government, particularly those taken during the last few months of its rule, so that a fresh direction was set and critical decisions were pursued in national interest with vigour. Senior officers were generally confused over major issues.
Officials said the petroleum minister had repeatedly claimed that Pakistan would go ahead with the gas pipeline project but had neither taken up issuance of sovereign guarantee for Tehran’s financing forcefully nor pressed the ministry of foreign affairs to arrange meetings with the Iranian government to resolve the issue of financing cost.
Under the gas sales and purchase agreement between the two sides, the pipeline has to start delivering gas by Dec 2014 under take or pay clause which means the party failing to meet its commitments has to pay about $30m per month.
“Unless we start construction work now, the project is likely to miss the deadline,” a senior official said.
The officials, however, hinted that backchannel efforts were underway to ensure a softer approach by the US on the project, given the relaxations Washington extended recently to Tehran.
The issue is expected to figure prominently during Prime Minister Nawaz Sharif’s upcoming visit to the US where he will meet President Barack Obama.
In March, then president Asif Ali Zardari and his Iranian counterpart Mahmoud Ahmadinejad formally inaugurated the construction phase of the pipeline project on the Pakistani side. But no activity has followed because the financing offer from the Iranian contractor — the Tadbir Energy — was considered high.
Pakistan has been collecting gas infrastructure development cess from consumers for more than a year to cover at least one third of the project cost. It has been talking about arranging about $500m financing from China but the idea has not materialised yet.
The officials said the gas pipeline was not the only project facing snags. The petroleum sector’s circular debt which had been cleared till May 31 has again crossed Rs100bn mark at the monthly average of Rs35bn in June, July and August.
The Pakistan State Oil recently took up the issue with the federal government but to no avail. Also, the upgradation work in refineries has not moved at the required pace, except for Attock Refinery which recently arranged financing for the purpose.
Apart from the Parco refinery, all the refineries are currently producing petroleum products that contain high sulphur content and which are expensive as well as hazardous for the environment.
Moreover, the proposed plans for import of liquefied natural gas (LNG) have also not taken off the ground as many proposals are facing bidding-related controversies.