Government is likely to appoint a Chinese bank lead consortium that also includes leading local banks, as financial advisor (FA), for $1.2 billion Iran-Pakistan (IP) gas pipeline that will bring 1.05 billion cubic feet daily (bcfd) of natural gas from Iran’s South Pars gas field to the country. An official source said negotiations with the Chinese bank lead consortium were complete and final agreement will be signed next week after holidays. He said given the importance and complexity of the project, it was essential that each aspect of the project was well planned and documented to ensure efficiency and transparency in the project’s implementation. However, he said names of the banks could not be revealed till the final agreement is signed.
United States is exerting pressure on Pakistan for the last several months to abandon the project with Iran which is under UN sanctions. However, faced with crippling power shortage of 5,000 MW that is causing a loss of three per cent in GDP growth for the last few years, the country is left with no other options but to import natural gas for affordable power generation. Selection of a Chinese lead consortium as FA will help avoid US pressure, the source said. Financial advisor will assist Inter State Gas Systems Limited (ISGS) in determining an optimal capital structure and financing plan for the project and for providing of political and commercial risk cover. It will be responsible for managing the entire transaction up to financial close including help in arranging financing.
To avoid US pressure, a segmented approach has been adopted for the project and both the participant countries are responsible for building and operating the pipeline transportation network relating to the project in their respective territories. ISGS is responsible for the Pakistan segment of the project, which is estimated to cost $1.2 billion based on the recent provisional cost estimates. Estimated gap between demand and supply is projected to increase from 1.6 bcfd in 2011-12 to over 2.5 bcfd in 2014-15. IP pipeline project will bring in 750 mmcfd gas, first gas flow of which is expected in 2014. The project involves construction of 781 km gas pipeline from Iran Pakistan border to Nawabshah to inject gas into transmission system of the two gas utility companies.
Government has been advised to start process for setting up new Independent Power Producers (IPPs) of 5,000 MW cumulative capacity, so that they should be ready for commissioning by the time natural gas starts flowing from Iran Pakistan gas pipeline in December 2014. Official estimates based on current crude oil price project that monthly gas import bill will be in tune of $200-250 million, which was lowest as compared to other options of HSFO and RLNG.
Government has already decided to dedicate imported gas through IP pipeline for power sector as power shortage is projected to increase over 11,000 MW in next few years. The decision was made considering economic feasibility of Iranian gas as compared to the price of other alternatives fuels such as furnace oil, LNG and coal. Use of IP gas is estimated to result in an average annual savings of $1.2 billion against using RLNG as alternate fuel at crude price of $100 per barrel. Present value of total savings comes to $10.9 billion. Using HSFO as an alternate fuel indicates that IP gas will result in average annual savings of $1.7 billion at crude price of $100 per barrel. Present value of total savings comes to $15.3 billion.
Recently imposed levy on natural gas which helps generate Rs45 billion per annum, which the government plans to use to develop the gas infrastructure for the imported Liquefied Natural Gas (LNG), Iran Pakistan (IP) gas pipeline and Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline projects.
Govt to appoint Chinese bank as financial Advisor for IP project
