Pakistan has formally told Iran that the two countries should, at least for now, shelve their gas pipeline project and that the Persian Gulf nation should give some leeway to Pakistan regarding the penalty associated with the December 31, 2014, deadline for completion of the project.
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Pakistan has been facing funding problems to build its section of the pipeline due to a lack of interest from financial institutions, international oil and gas companies, and even countries such as Russia and China who had originally pledged support for the project, an official with Pakistan's petroleum ministry said Wednesday.
Most of them are concerned about the implications of the US sanctions against Iran, he said, adding that though Iran has signed a nuclear deal with the US and other Western nations, Washington has told Islamabad that it has not changed its stance on the IP pipeline project.
"Besides the lack of interest by the multinational companies, financial conditions in Pakistan also [do not allow for the government to] pump funds for this huge project, causing delays in construction of the pipeline," the official, who declined to be named, said.
Construction of the $2 billion Pakistani section of the Iran-Pakistan pipeline officially started amid much fanfare in March last year, but progress has since stalled following the election of the new government in Pakistan in May.
Iran, on the other hand, has already built almost all of its section of the estimated $7.7 billion, 2,775-km pipeline.
Pakistan in October asked Iran to shoulder the entire $2 billion cost of building the Pakistani part of the pipeline, but Iran declined. Iran had earlier assured Pakistan $500 million for the gas pipeline, but later backed out of that deal.
PAKISTAN DAUNTED BY HEFTY PENALTY
Meanwhile, Pakistan also faces the challenge of having to pay Iran a penalty of $3 million/day if it fails to complete construction of its section of the pipeline by December 31, 2014.
Last week, a Pakistani delegation led by petroleum secretary Abid Saeed visited Iran and asked for an extension to the deadline, and to waive the penalty fee due to the geopolitical situation.
Islamabad has been under pressure from the US to abandon the project due to international sanctions against Iran, but has maintained that the proposed gas imports are essential to resolve the chronic power shortages in Pakistan.
In December last year, Iran's deputy petroleum minister, Ali Majedi, voiced his unhappiness with Pakistan's passiveness in completing the pipeline, and is looking to bring in European companies to assist with the construction on Pakistani soil. Iran has so far spent about $2 billion in the project, having almost completed its side of the conduit, Majedi said.
"By the time the project is completed, it would probably cost around $3 billion [for Pakistan]. Initial evaluations had shown it would cost $2 billion-2.5 billion [to build the pipeline on the Pakistani side]," the official said.
Under their contract, Pakistan was to buy between 750,000 Mcf/day and 1 Bcf/day of gas through the pipeline.
LNG IMPORTS FROM QATAR
Pakistan will soon hold talks with Qatar to finalize plans to import 3.5 million mt/year of LNG, the ministry official said.
The government wants to ensure the first flow of LNG imports by November 2014, the official said.
Pakistan and Qatar signed a memorandum of understanding for LNG imports in February 2012, but progress was slow due to disagreements over the gas price.
Qatar has offered the LNG at $18/MMBtu, but Pakistan is asking them to consider a lower price, the official said.
Pakistan's Economic Coordination Committee in July approved construction of three LNG import terminals at Port Qasim in southern Pakistan. When completed, the three terminals will be able to import, store and regasify up to 1.7 Bcf/d of LNG.
Pakistan currently produces around 4.2 Bcf/d of gas, far short of demand of around 6.6 Bcf/d, which rises to almost 7 Bcf/d in winter, according to petroleum ministry estimates.