ISLAMABAD: In another shocking development, Ministry of Petroleum and Natural Resources has expressed apprehension that the second consortium led by United Bank Limited (UBL) may also back out of the Iran-Pakistan (IP) gas pipeline project.
Official documents exclusively available with Business Recorder reveal that the Petroleum Ministry informed the Economic Coordination Committee (ECC) of the Cabinet on March 13, 2012 that the Financial Advisor comprising International Commercial Bank of China (ICBC) and Habib Bank Limited (HBL) appointed after International Competitive Bidding (ICB) has backtracked due to an adverse geo-political situation.
Under the procurement procedure, if the lowest bidder backs out then the second lowest bidder is automatically selected. "It was also apprehended that the second consortium which includes UBL, will also not be willing to finance the IP project," the documents further disclose.
The second consortium comprises UBL, Burj Capital Pakistan (private) Limited, ECO Trade Development Bank Limited, Fieldstone Group and Islamic Corporation for the Development of the Private Sector. The ECC was informed that a meeting of Pak-China Energy Group is being held shortly and this project can be placed on the agenda of that meeting for which a comprehensive strategy will be chalked out.
The ECC of the Cabinet was informed that IP gas pipeline project has entered into its implementation phase and work on Front End Engineering and Design (FEED), feasibility and feasibility report is scheduled to be completed by June 2012. Thereafter, bids will be invited from EPC contractors for construction of the pipeline.
The total cost pf these activities will be approximately $1.5 billion. Steering committee/ sub-committee of the ECC and the ECC had decided that debt to equity ratio of 70:30 will be maintained with GoP giving a majority share in equity portion of the project.
Pursuant to the directions of sub committee and ECC, a Financial Advisor was appointed through ICB, in accordance with PPRA Rules. The contract with the FA was signed by the ISGS on January 6, 2012 as well as other parties of first consortium ( HBL and Ernst& Young Ford Rhodes Sidat Hyder), except Industrial and Commercial Bank of China (ICBC), which is in the process of taking due approvals to sign the agreement.
Tender documents for EPC contractors, compressor station suppliers, etc, are being finalised. These contracts are expected to be executed during the second and third quarters of the current calendar year. The ECC of the Cabinet was further informed that apart from any ancillary services, these contracts will account for a major portion of the overall funding requirement of the IP project. In case of any delay in provision of requisite funding, contracts with suppliers may not be executed and may result in an overall delay in completion of the IP project.
Foreseeing the obstacles in the project, Ministry of Petroleum has prepared the following alternative options to meet funding requirements:
A - Funding through the Gas Infrastructure Development Cess: Federal government has started collecting Cess through the Gas Infrastructure Development Cess Act, 2011, which, amongst others, is required to be utilised for or in connection with infrastructure development of IP pipeline project. Initial estimates regarding Cess suggest that funding requirements of entire IP project could be met by Cess. In view of current funding problems and the gas shortage in the country, the Cess may be routed to Pakistani Banks who would then be in a position to create a fund with the GOP. The funding could then be routed to ISGS to meet financial requirements of the IP project.
This would reduce the overall cost of the project as ISGS will not be incurring any additional charges and would therefore help reduce the tariff for imported gas.
B - Contract execution with Second Consortium: If ICBC does not execute the contract, ISGS may be allowed to cancel their bid and approach the second consortium (United Bank Limited, Burj Capital Pakistan (Private) Limited, Eco Trade Development Bank Limited, Fieldstone Group, and Islamic Corporation for the Development of the Private Sector) for contract execution to provide Debt and Private Equity necessary for completion of the project on the same terms and conditions as agreed with the first consortium (HBL, ICBC, and Ernst and Young Ford Rhodes Sidat Hyder).
C- G to G with Government of China and/or Russia to fund the complete project: Pakistan should approach Chinese and/or Russian government and enter into a G to G arrangement to fund the complete project including supply of the Long Lead Items (LLIs). If this option is explored, exemption from PPRA Rules may be required.
D- G to G arrangement with Iran: During the visit of Deputy President on International Affairs of Islamic Republic of Iran (5-7 February 2012), Iranian side offered to construct Iran-Pakistan pipeline in Pakistan (planning, engineering, supply of pipeline, compressor stations, etc). They offered to provide US $250 million towards funding for the project. In line with the resolve of both the governments, G to G arrangement with Iran can be explored.
After a detailed discussion on all aspects of the project, the ECC constituted a committee comprising Minister for Water and Power, (convenor). Minister for Petroleum and Natural Resources, Deputy Chairman Planning Commission, Secretary Finance, Secretary Economic Affairs Division and Secretary Petroleum with the following Terms of Reference (ToR): (i) to establish the facts of the case;(ii) to examine the penalty clause of the agreement; (iii) to examine the possibility of utilising the Gas Infrastructure Cess collected under the Gas Infrastructure Development Cess Act. 2011; (iv) to identify as to who will operate the IP project; and (v) to submit its recommendations to the ECC in one week's time.