Pakistan and Iran are preparing to sign a memorandum of understanding (MoU) for setting up the country’s largest oil refinery costing $4 billion at the Gwadar Port on March 11, a project that will not only meet Pakistan’s refining needs but will also open avenues for China to get oil supplies.

Iran will set up an oil complex at the Gwadar Port, which will have the oil refinery. According to the original plan, Tehran will also lay an oil pipeline from its territory to Gwadar to transport crude oil for processing.“If Pakistan and Iran succeed in completing the oil refinery and the pipeline, it may prompt China to revive its projects of establishing an oil refinery in Gwadar and laying an oil pipeline from Gwadar to western China to get oil supplies,” an official told The Express Tribune.

During the tenure of previous government, China had expressed interest in joining the Iran-Pakistan (IP) gas pipeline project, but did not push ahead with the plan following handover of Gwadar Port operations to Singapore Port Authority, the official said.Now that China has taken over operations at the port, it may reinitiate the projects including oil and gas pipelines.

According to sources, the oil refinery that will be established by Iran may serve as an alternative to Khalifa refinery, which was planned to be built with the assistance of UAE’s state-run International Petroleum Investment Company (IPIC). The Khalifa project got bogged down after controversy erupted over the extension in tenure of managing director of Pak-Arab Refinery Company (Parco), a joint venture between the governments of Pakistan and UAE’s emirate of Abu Dhabi.

Islamabad and Tehran are set to launch the Iran-Pakistan gas pipeline project on March 11 on their border. On the occasion, they will also sign an MoU for setting up the oil refinery.During a trip to Islamabad on February 20, Iranian Oil Minister Rostam Ghasemi had agreed to build Pakistan’s largest refinery at the Gwadar Port with a refining capacity of 400,000 barrels per day in a joint venture with oil marketing giant Pakistan State Oil (PSO). Prime Minister Raja Pervez Ashraf has given the go-ahead to signing the MoU.

China’s coastal refinery plan is part of its programme to invest $12 billion in multiple projects in Pakistan. The refinery will have the processing capacity of 60,000 barrels of crude oil per day.Pakistan and China had also considered a feasibility study for the oil pipeline from Gwadar to western China for transporting oil from the Persian Gulf. But the proposal was shelved after Beijing’s refusal to set up the oil refinery, sources said.

Former president Pervez Musharraf had also coined the idea of a trade corridor to meet Beijing’s energy needs and offered help for constructing a strategic pipeline from Gwadar to China’s border for supply of oil from Saudi Arabia.China is heavily reliant on oil supply from the Gulf states, which currently comes through a very long route, via the Strait of Malacca.

Oil first reaches Shanghai, or the Chinese east coast, and then covers thousands of miles to reach the west of China. However, “the Gwadar refinery can provide a much safer, cheaper and shorter route to the west of China for oil transportation through Karakoram Highway,” a senior official said.

So far, the biggest chunk of Chinese investment in Pakistan has gone to development projects in Balochistan including Saindak copper and gold project in Chagai and lead-zinc mining project in Lasbela.“The coastal oil refinery project may also create scores of employment opportunities for the local people,” the official remarked.