ISLAMABAD: Pakistan has shared with Iran amendments to gas sale and purchase agreement (GSPA) to extend implementation schedule and revise pricing under the $1.35-billion gas pipeline project.
A senior government official on Thursday told Dawn that the Economic Coordination Committee (ECC) of the Cabinet hasn’t yet allowed the Ministry of Petroleum and Natural Resources to start formal negotiations with Iran over fresh pricing.
He said the ministry requested the ECC in July this year to revive a committee to start formal talks and “we are still waiting for the approval”.
The petroleum ministry told parliament a few days ago that for the Iran-Pakistan (IP) project to be implemented in the extended period, “amendment to the GSPA was required”. It said a draft amendment had been shared with Tehran that agreed to negotiate it along with some other changes.
The official explained that the two key amendments were required to be made in the GSPA that had been “under suspension” for a few years. These proposed changes related to extension in timelines under the original agreement Pakistan should have completed the pipeline on its side by Dec 31, 2014 and gas flows should have started with effect from Jan 1, 2015.
Secondly, the pricing formula has to be revised based on latest market situation, prevailing prices from competitive sources and international best practices. Both Tehran and Islamabad wanted extension in dates and prices that would trigger a series of actions in line with best international practices.
The talks on the project were revived after a few years of suspension in March this year during the Iranian president visit to Pakistan. The two sides agreed to GSPA amendment for extension of time to finalise workable implementation schedule, price negotiation as per review clause in GSPA and Iranian proposal regarding amendments to the GSPA.
Since the project could not be completed due to unilateral withdrawal from government-to-government cooperation agreement by Iran, the Pakistani side proposed to extend the time for completion of the project for which proposed amendments to the GSPA were shared with Iran. The Iranian side also verbally suggested making some amendments to the GSPA. It, however, did not share any draft despite repeated requests.
The federal cabinet approved signing of the Iran-Pakistan GSPA on June 3, 2009. The petroleum ministry also sought permission to constitute a price negotiation committee led by the secretary petroleum and comprising secretaries or their nominees of the ministries of finance, law, foreign affairs and managing directors of the Sui Southern Gas Company, Sui Northern Gas Pipelines Ltd and Interstate Gas Company.
The sources said Pakistan discussed the issue of “snap back” of sanctions besides setting realistic time frame for achieving financial closure and construction timelines. Iran assured alternative preparations to the sanctions issue through contractual frameworks.
Iran has told Pakistan that the pipeline segment on the Iranian side will take about one-and-a-half years to complete. Pakistan has stressed the need for setting the right timelines targeting early completion yet adequate provisions and flexibility for long-term measures and all eventualities towards achieving an amiable financial closure and construction.
On the matter of price review, Pakistan has referred to new and transformed gas market dynamics, including the availability of liquefied natural gas as a cheaper alternative fuel to the Iranian gas. Iran has officially conveyed that there was no difficulty in reviewing the price mechanism under the price review trigger.
To satisfy Iran over payments and banking arrangements, Pakistan has already taken a few steps in lifting restrictions on banking transactions with Iran, including a notification by the State Bank of Pakistan a few months ago. Iran has already indicated revisiting the price formula indexation from Japan Crude Cocktail to Brent and a discount for peak off-takes in summer.
Pakistan is currently building the 700-kilometre Gwadar-Nawabshah gas pipeline through Chinese assistance.
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ISLAMABAD:
With Iran coming out of decades-long global economic isolation, China has offered Pakistan that it was willing to finance the un-built portion of a multibillion-dollar gas pipeline project.
Officials told
The Express Tribune that the China Petroleum Pipeline Bureau (CPPB) – currently engaged with the $1.4 billion Gwadar-Nawabshah LNG terminal and pipeline project – was keen to work on the remaining portion of the gas pipeline from Gwadar to the Iranian border to implement the Iran-Pakistan gas pipeline project.
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China was providing 85% of the total financing for the LNG pipeline project and wanted to emulate the same model for building the remaining portion of the pipeline from Gwadar up to the Iranian border.
The IP gas pipeline project had been stalled due to international curbs against Tehran. But soon after lifting of the sanctions, the United States had imposed certain sanctions against Tehran that were hindering the implementation of the IP gas pipeline project.
Officials said China had also expressed its desire to work on the remaining portion of the 80km pipeline from Gwadar to connect it with the Iranian border. China was lobbying to award the contract of this portion as per the cost decided for the Gwadar LNG pipeline.
A senior government official said Pakistan was working on LNG import projects but LNG supply was not a secured source because in case of war, this supply source could be halted.
He said this was the reason why the IP project was considered to be an essential as well as strategic project for Pakistan.
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“In case of some interruption in the supply of LNG, Pakistan will be able to get gas supply through the IP pipeline,” the official added.
The other reason was that prices of steel and other material for gas pipelines had dropped over the years. During the last PPP government, Iran had decided to lay the IP pipeline by nominating an Iranian company. Iran had also pledged $500 million financing for the project.
The offer of the Iranian company contract was $2.8 billion. German consultant ILF had estimated the contract cost at $1.8 billion. However, its cost had come down to $1.6 billion since.
The official said the approved cost of the LNG pipeline project by the Executive Committee of the National Economic Council (Ecnec) was $2 billion that included the $1.4 billion EPC (engineering, procurement and construction) cost and $600 million in duties to the government.
He said if the pipeline is extended up to the Iranian border, its cost as per the Gwadar LNG pipeline terms and conditions would come to $1.6 billion.
The official added that the government was working on a plan to set up two jetties at the Gwadar Seaport to deal with 1,200 mmcfd LNG where two floating terminals would be made operational.
The Chinese company would also work on the project as the EPC contractor and China would provide financing for it.
