Russia and China appear to be losing the race for the $1.5 billion Iran-Pakistan (IP) gas pipeline project as Islamabad and Tehran have agreed to sign a $250 million loan agreement next month for laying Pakistan's portion of the pipeline, The Express Tribune reported.
"We have finalised arrangements for a loan of $250 million from Iran in a deal between the two governments. The final agreement will be signed after Eid during visit of an Iranian delegation to Islamabad," a source told The Express Tribune.
This comes despite pressure from the US, which opposes big commercial deals with Iran because of Tehran's alleged nuclear programme. Iran insists that its programme is peaceful.
Iran has also offered an additional loan of $250 million from its commercial banks for the pipeline. Tehran will also provide material support.
According to sources, Iran will provide a total of $500 million to finance the gas pipeline and the remaining amount will be arranged by Pakistan through collection of gas infrastructure development cess, a kind of tax being paid by domestic gas consumers.
The government is expecting to collect Rs30 billion worth of cess from the consumers in the current fiscal year 2012-13.
"As US has warned foreign companies that they will face sanctions if they participate in the IP pipeline project, Pakistani and Iranian gas companies will form a joint venture to lay the pipeline in Pakistan," the source said.
German-based firm ILF has completed engineering design of the pipeline and an interim feasibility report has put the project cost between $1.2 and $1.5 billion.
"If the project gets under way with the participation of local companies, the cost will fall," said an official.
Iran has already offered Pakistan to lay the entire pipeline as the latter has been facing problems in attracting funds from countries like China and Russia.
Earlier, Russia and China expressed interest in financing the pipeline if they were awarded the contract without bidding, but no headway could be made apparently due to US opposition.
A Russian delegation also came to attend a meeting of the Inter-governmental Commission in Islamabad in September, with a heavy agenda and particular focus on the IP pipeline, but to no avail.
Under the project, Iran will supply 750 million cubic feet of gas per day (bcfd) to energy-deficient Pakistan. The volume can be enhanced to 1 bcfd later.
Many people believe that Iran's offer is the best option available amid pressure from the US, which has warned that those assisting the project will face possible sanctions.
State-owned National Bank of Pakistan (NBP) and Oil and Gas Development Company (OGDC) have already backed out of the project. NBP feared forced closure of its branches in different countries while OGDC bowed to the threat of US-based investors, who said they would withdraw their investment in the company's shares.
According to Iranian authorities, the pipeline is expected to reach the zero point at the border in the first half of next Iranian calendar year, beginning March 20, 2013.
In a statement, National Iranian Gas Company has said work has come to an end on the 56-inch seventh gas trunk line from Iranshahr, southeast of Iran, to the Pakistan border and Zahedan.