Pakistan to borrow $300 million to fund gas pipeline from Iran

Pakistan to borrow $300 million to fund gas pipeline from Iran

Pakistan plans to borrow $300 million from local banks to build a pipeline that will carry natural gas from Iran, easing its worst energy crisis, Bloomberg reported.

Local state-owned companies will provide about $210 million in equity for the $1.3 billion pipeline, said Mobin Saulat, acting managing director of Inter State Gas Systems Ltd., the agency responsible for the project.

Pakistan may approach foreign companies including OAO Gazprom, International Petroleum Investment Co. and China National Petroleum Corp. for the rest of the financing, he said.

Local funding is crucial for the project because of pressure on Western banks and international agencies to isolate Iran, which the U.S. and European Union say is seeking to build nuclear weapons. Fuel shortages in Pakistan have forced the government to ration supplies, cutting power for as much as half the day in major cities.

"We've done the market testing to see the appetite among local banks," Saulat said in an interview on Aug. 11. "The signal we've got is that around $300 million can be raised from a local consortium."

Inter State Gas, based in Islamabad, is responsible for completion of the pipeline by 2014, a deadline agreed on by the two countries last year after political and security concerns delayed the project by a decade. Under an accord signed in June 2010, Iran will provide about 21.5 million cubic meters of gas a day to Pakistan for 25 years. The deal can be extended by five years and volumes may rise to 30 million cubic meters a day.

Pakistan's gas shortfall is forecast to reach 2.22 billion cubic feet a day in the fiscal year that began July 1, according to government data. The shortage has forced the government to ration supplies to cars that run on compressed natural gas, while the biggest cities have faced blackouts for as long as 12 hours a day.

Last year, 53 percent of Pakistan's energy came from natural gas, 30 percent from oil and the rest from coal, nuclear and hydropower, according to data from BP Plc. Pakistan produced 39.5 billion cubic meters of gas in 2010, or 3.8 billion cubic feet a day, according to BP.

Inter State Gas invited banks last month to help arrange the funding and plans to seek bids for construction next month, Saulat said.

The pipeline will carry gas from the South Pars field via Baluchistan province in southwest Pakistan to an off-take point in Nawabshah. South Pars, which extends from Qatar's North Field, is the largest known gas deposit in the world.

"We are doing things in parallel for the expeditious completion of this project," Saulat said. "There is a huge shortfall and we need to work on many options to meet that growing demand."

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