The Economic Co-ordination Committee (ECC) of the Cabinet has been informed that the draft investment agreement of the multi-billion dollar TAPI gas pipeline project will be signed in the second week of January 2016 during the upcoming meeting of the steering committee of the project. Sources said the ECC meeting presided over by Finance Minister Ishaq Dar was submitted a proposal on Turkmenistan Afghanistan-Pakistan-India (TAPI) gas pipeline project.
Ministry of Petroleum has also informed the ECC that the Asian Development Bank (ADB) has also shown interest in financing Pakistan's portion of the project's equity. The Ministry presented summary to the ECC for approval of Pakistan's share of equity. The preliminary technical study for the project with the assistance of transaction advisor ADB has been completed.
The meeting was further informed that after Turkmenistan agreed to become the consortium leader for TAPI project with 85 percent contribution of equity and the responsibility for project development and operation, TAPI ministerial level (steering committee) in 2015 decided that the rest of the equity would be shared equally by Afghanistan, Pakistan and India - 5 percent each in the project company which amounts to $200 million each.
The project has an estimated cost of $10 billion and the four countries negotiated the draft TAPI shareholders agreement (SHA) and investment agreement (IA) after the approval of equity structure.
Ministry of Petroleum further informed the ECC that draft shareholders agreement was signed by the parties subject to approval of respective competent authorities, while draft investment agreement would be signed by all parties in upcoming meeting expected to be held in the second week of January, 2016.
The investment agreement primarily sets out the manner, mode and mechanism through which ISGS, GAIL, AGE and Turkmengas and CLG (Consortium Leader Group) would subscribe additional shares of the TAPI Company. The IA also sets out the steps to be taken for transfer of the new shares to the subscribers. The agreement will also set out the number of shares to be subscribed. Originally all TAPI parties equity share in the Project Company was envisaged at 25 per cent however with Turkmenistan as Consortium Leader, it was agreed that 85 per cent equity share will be taken by Turkmenistan and rest will be equally divided among the three buyers (ie Afghanistan, Pakistan and India).
The Ministry of Petroleum maintains that despite reduction in equity share, Pakistan was successful in pursing Turkmenistan for inclusion of some special rights of minority shareholders. The investment agreement sets out the steps to be taken for transfer of the new shares to the subscribers. The Agreement will also set out the number of shares to be subscribed and the consideration to be paid by each subscriber.
The ministry added that parties have agreed that equity, for Pre-FID (final investment decision) phase, will be provided in four equal quarterly installments by each party starting January 2016 in advance. Turkmengas, being CL, has proposed an implementation schedule which aims to achieve financial close by December 2016. Agreed Pre-FID budget is US $226 million and Pakistan's share is USS 12 million.
Afghanistan has intimated that out of its 5 percent share, 2 percent will be provided by government and remaining 3 percent will be financed through Asian Development Bank (ADB). Ministry of Finance has indicated that the amount be treated as subordinated loan, though no terms and conditions and tenor for the subordinated loan have been communicated in this regard. Since the expensed out amount has been converted into government of Pakistan equity in the project company through ISGS, it is recommended that the amount may be treated as equity instead of subordinated loan. The ECC has approved Pakistan share of $200 million equity, draft shareholders agreement and investment agreements and release of $12 million for pre-FID.