Amid pressure from the United States to shelve the much-needed Iran-Pakistan gas pipeline project, Russia has asked Pakistan to award a $1.2 billion pipeline-laying contract to its energy giant Gazprom without going into bidding process.

"If Pakistan accepts the demand of Russia and awards the contract to Gazprom, the largest explorer of natural gas in the world, Moscow will also provide financing for the project," an official told The Express Tribune.

Moscow floated the proposal during a four-day trip of Foreign Minister Hina Rabbani Khar to Russia earlier this month.

"However, Pakistan has not shown any willingness to grant the contract without inviting bids from competing parties, which will violate its Public Procurement Regulatory Authority (PPRA) rules," the official said.

An official of the petroleum ministry told The Express Tribune that Russia expressed interest in the Iran pipeline project, but he did not confirm whether Moscow sought the contract for Gazprom without bidding. Petroleum secretary could not be reached for comment.

Sources said the US opposition to Iranian gas supply to Pakistan also came up for discussion during Khar's visit. The US has imposed sanctions on Iran due to suspicions over its nuclear programme while Tehran insists that its programme is peaceful and meant for energy supply.

Though Russian authorities expressed worry over the US pressure, they supported Iran and Pakistan in pushing ahead with the project, sources said.

Pakistan has already formally invited the Russian giant Gazprom to participate in two multi-billion-dollar gas pipeline projects - Iran-Pakistan and Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipelines.

In a meeting of the Pak-Russia Inter-Governmental Commission held on September 22, 2010 in Russia, Pakistan invited Gazprom to lay the Iran-Pakistan gas pipeline. Earlier during deliberations in August 2010 in Russia, Russian President Dmitry Medvedev and Pakistan President Asif Ali Zardari also discussed the option of involving Gazprom in the pipeline project.

Gazprom has also expressed interest in building energy storages in Pakistan.

At present, Pakistan is facing mounting pressure from the US to shelve the Iran pipeline project. Besides, there are financing problems as well. Country's largest explorer Oil and Gas Development Company (OGDC) and National Bank of Pakistan (NBP) have already refused to finance the project.

OGDC management fears that its foreign shareholders will withdraw investment from the company if it entered the Iranian project while NBP is worried that its foreign branches may come under US sanctions and may be closed.

Pakistan and Iran have already signed a sovereign-guarantee agreement on the project. They have also inked a gas sale and purchase agreement for import of 750 million cubic feet of gas per day (mmcfd) with a provision to increase the volume to 1 billion cubic feet per day.

Under the guarantee agreement, Pakistan is bound to start first flow of gas in 2014 and will have to pay a penalty equal to the cost of 750 mmcfd of gas which amounts to $8 million per day if it fails to receive gas by the stipulated time.

The government has awarded consultancy services contract to German firm ILF Engineering Services at a cost of $55 million which is working in collaboration with the National Engineering Services of Pakistan (Nespak).

 

 


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(Originally published February 18, 2012, in The Express Tribune.)