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Pakistan, China agree to build Gwadar-Nawabshah gas pipeline

May 14, 2016

ISLAMABAD: In a major breakthrough, Pakistan and China have initialed an agreement to build 700 kilometers gas pipeline to be laid down from Gwadar to Nawabshah at the cost of $1.35 billion after Price Negotiation Committee (PNC) has finalised the cost of the project.

And to this effect Inter-State Gas System (ISGS) on behalf of Pakistan and China National Petroleum Corporation (CNPC) on behalf of China on Thursday initialised the agreement.

The project will be constructed with 85 percent financing from Chinese company and 15 percent from government of Pakistan, and the price at which the gas line will be laid down is much below the estimated cost, top sources of the Ministry of Petroleum and Natural Resources told The News. The government of Pakistan will arrange the financing of Rs15-12 billion for the project from the head of GIDC (Gas Infrastructure Development Cess).

When contacted, Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi confirmed the development saying both the sides initialised the agreement for building the pipeline. “We are now in the process of making summary for ECC approval and once the approval is accorded, the ISGS and CNPC would formally sign the agreement and after which the construction work would kick off. The pipeline will be constructed and commissioned by December 2017.”  To a question, the minister said that since the GIDC amount would be involved in the project therefore, the Ministry of Petroleum and Natural Resources had sent the PC-1 of the project to Planning Commission for approval.

However, the sources said that the project was to be built by CNPC that would arrange the commercial loan for the project. The CNPC would be given the contract on EPCF (engineering, procurement, construction and financing) basis. The impression that the project would be completed under CPEC umbrella was not correct, rather the said project would be materialised out of the CEPC initiative and it would be completed as a commercial transaction.

According to the sources, earlier Chinese side had come up with the offer to build the pipeline with diameter of 42 inches at the cost of $2 billion, but after hectic meetings of Price Negotiating Committee (PNC) in a row, the price of the pipeline had been finalised at close to $1.35 billion which was too much below from the expectations. Sources said under the agreement basically the pipeline of 700 kilometer would be built and another 12 kilometer portion of pipeline would also be constructed from LNG terminal to main pipeline and that particular portion would be part of LNG terminal. Once the pipeline was completed, Pakistan would extend the same pipeline with three compressor stations by 81 kilometer backward from Gwadar to Iranian border as part of IP gas line. The pipeline when it is connected with Iran will economically become more feasible as the said pipeline will transport the gas of 750 mmcfd from Iran and 500 from LNG terminal. Later on Iran will increase the gas export up to 1 billion out of which 250 mmcfd gas will be earmarked to cater to Gwadar.

However, the sources said, LNG terminal with 12 kilometer pipeline will be built at Gwadar port with capacity to handle LNG of 500 mmcfd by the same Chinese company on BOOT (build, own, operate and transfer) basis. And to this effect Price Negotiating Committee (PNC) will start working on price of LNG terminal. The sources said that the cost of the LNG terminal at Gwadar port would be at higher side as there was no supporting infrastructure to build the LNG terminal, so one had to construct the terminal from scratches meaning by that the project would bear the cost at higher side.