IP Implementation Agreement: Pak-Iran technical teams to finalise modalities next week

The technical teams of Pakistan and Iran are scheduled to meet in Tehran on April 13-14 to finalise modalities of 'Implementation Agreement' (IA) on Iran-Pakistan (IP) gas pipeline project, Business Recorder has learnt.
"Pakistan and Iran have already signed Gas Sales Purchase Agreement (GSPA), and now the two sides are set to finalise the IA in a bid to kick off the work on the project," Ministry of Petroleum (MoP) spokesman Additional Secretary Zafar Iqbal Qadir said.
Sources said that the government was working on two options: either to implement the project by Interstate Gas Systems Limited (ISGS), or by Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipeline (SNGPL) jointly. They said that funds provision to ISGS would entail a number of issues, like provision of equity, which would delay the overall implementation of the project.
The Ministry of Petroleum argues that ISGS should be compensated for its operating cost, and actual cost of gas must be reimbursed by SSGC and SNGPL to it. As the capital expenditure would be incurred by SSGC and SNGPL, the cost of financing would be borne by them, and no charges for the pipeline network would be taken from ISGS.
Under one option, if the project is implemented by ISGS, the company may be given a 'return on equity' (ROE) of 15 percent in US dollar terms, and average operating cost in the first ten years would be around Rs 70 to Rs 80 per 1000 mmcfd imported gas from Iran. This may increase if there is depreciation in the value of the rupee against the US dollar. The current cost of SSGC is around Rs 15 per 1000 mmcfd, or Rs 5 per 1000 mmcfd after financial charges.
In second option, if the project is to be implemented by SSGC and SNGPL jointly, which currently own 100 percent of ISGS equity, they would be responsible for implementing and financing the project. They will be given a return as per current tariff formula on the capital expenditure.
The gross return is 17 percent in rupees before financial charges and tax. After adjustment of financial charges and tax, the return would be lower. The cost per 1000 mmcfd under this financing structure has been estimated at around 40 percent of the cost incurred by ISGS to implement the project. "Therefore, keeping in view the cost comparison, it would be appropriate to implement the project by SSGC and SNGPL jointly," sources said, adding that the government of Pakistan can provide a guarantee to raise funds by these two gas utilities.