Iranian Tadbir Energy started construction works on the Iran-Pakistan gas pipeline, Fars News agency reported.
The cost of construction of the pipeline from Gabd-zero point, on Pakistan-Iran border, to Nawabshah for the delivery of 750 million cubic feet of gas per day has been tentatively agreed upon at $1.5 billion but Iran has been asked to reduce the per kilometre construction cost.
Iranian Oil Minister Rostam Qasemi arrived in Pakistan yesterday to discuss the Iran-Pakistan gas pipeline with Pakistani officials.
Qasemi is heading a 9-member high ranking delegation, which conveys a special message from Iranian President Mahmoud Ahmadinejad regarding the IP gas pipeline project.
Pakistan and Iran are forging ahead with the project despite opposition from the US, which has imposed sanctions on Tehran for its alleged nuclear programme.
Adviser to Pakistani Prime Minister on Petroleum and Natural Resources Asim Hussain said earlier that the Iranian company will complete the process of constructing the pipeline in 15 months, according to Pakistan Tribune.
Frontier Works Organisation (FWO), Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) will also take part in the construction work.
Sources said Pakistan and Iran had finalised per kilometre cost of laying the pipeline, which will be of 42 inches and spread over 781 km, as well as markup on loan being provided by Tehran.
The per kilometre cost will be Rs190 million and markup on $500 million loan will be 3 percent per annum. "Iran had demanded 4 percent interest on loan," a source said.
The financing will be for 20 years with a five-year grace period.
Iranian President Mahmoud Ahmadinejad during his trip to Pakistan on November 22 emphasized the need to complete the Iran-Pakistan gas pipeline according to schedule.
The Iran-Pakistan gas pipeline, projected to cost $1.2-1.5 billion, is aimed to export a daily amount of 21.5 million cubic meters of Iranian natural gas to Pakistan.
Iran has already constructed more than 900 kilometers of the pipeline on its soil.
Under the proposed agreement, Tadbir Energy has to lay the pipeline inside Pakistan and provide $500 million loan, which is repaid as part of gas price, involving an interest rate of about two per cent plus London Interbank Offered Rate.
Pakistan's engineering and pipeline companies will provide advisory service and the Frontier Works Organisation will handle the civil works.
Speaking of the gas price, Fars reported that the recent meeting between Iranian and Pakistani officials saw the price for Iranian gas to Pakistan reduced, however no details were disclosed.