Pakistan and Iran, while setting aside persistent US pressure, are expected to finally ink an agreement during next week for the award of contract to an Iranian company, which will lay Pakistan’s portion of IP gas pipeline.

Reliable sources in Petroleum Ministry informed TheNation that an agreement between Pakistani public sector firm Inter State Gas Company (ISGC) and Iranian firm Tadbir Energy would sign during next week for the construction of Pakistan’s portion of 781 km long Iran-Pakistan (IP) gas pipeline. Officials of Iranian firm would reach in Islamabad on February 11. Under the agreement, Iranian firm for the construction of said pipeline would be bound to initiate engineering, procurement and commissioning (EPC).

Tadbir Energy faces no sanctions from any foreign government. It is controlled by the Imam Khomeini Foundation, one of Iran’s largest charitable groups. They said both brotherly countries Iran and Pakistan would initially provide $250 million while in second phase they would again provide same amount. Tehran is extending a $500 million loan because both countries have already signed an inter-governmental cooperation agreement.

Since the federal cabinet, in a meeting on January 30, has given go ahead to the construction of Iran-Pakistan (IP) gas pipeline project and gave a waiver from the Public Procurement Regulatory Authority (PPRA) rules in order to award the contract directly to a private Iranian firm. The agreement will be signed in Islamabad during next week.

Sources further told that Iranian Tadbir will also undertake the second segment of the project, and will increase the financing facility by allocating up to $250 million to the project, subject to discussions regarding its involvement in the distribution of gas in Pakistan later on. It has also agreed to provide and assist in arranging $250 million as supplier credit and any additional financing for the second segment. The Iranian firm will act as the lead contractor along with the nominated local subcontractor(s).

Initially the IP gas pipeline project was proposed in 1955 but series of meeting between both neighbouring countries halted in 1993 due to undue US pressures now coupled with US sanctions on Iran. As US sanctions have put problematic hurdles in the way of making payments to Iranian firms, the two sides have drawn up a plan to finance gas pipeline on Pakistan’s side without Islamabad transferring funds to Tehran.

The project envisages gas inflows of 750 million cubic feet per day by the end of December 2014, which will be consumed by power plants to generate around 4,000 megawatts of electricity.The IP pipeline engineering and project management consultant, who was appointed in April 2011, has completed work on a bankable feasibility study, interim front-end engineering design and a route reconnaissance survey.

Sources further said that the total cost of the project is expected to come to around $1.5 billion and Iran will provide $500 million, while the remaining amount was supposed to be generated through the Gas Infrastructure Development Cess (GIDC).However, the Islamabad High Court recently declared the levy of this cess illegal,

and directed the government to reimburse amounts collected to gas consumers. Therefore, the government might meet with problems in generating the remaining funds. However, Pakistan will not pay any money to the company; instead, the Iranian government will pay $500 million directly to the firm for the construction of the pipeline, sources added.