ISLAMABAD: The crucial Iran-Pakistan Pipeline envisaging import of 750 million cubic feet of natural gas has been delayed due to political transition in the country and now it cannot be completed by the contractual deadline of Dec 31, 2014.

The ministry of petroleum and natural resources, however, told a meeting of the Senate Standing Committee on Petroleum, headed by Senator Mohammad Yousaf, on Tuesday that Iran had shown willingness to do away with penalties on delay in project implementation. The committee was also briefed on the status of the $7.6 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.

Under take or pay clause of the gas sales and purchase agreement between Pakistan and Iran, the failure on part of any party to complete the pipeline attracts penalties equivalent to the quantity of gas. It works out at about $200 million per month. The agreement required first gas flows on Dec 31, 2014.

Petroleum Secretary Abid Saeed told the meeting that delay was caused by the transfer of power process because some important approvals for initiating the construction work on laying of the pipeline could not be obtained during the caretaker tenure. He said the delay would aggravate energy crisis in the country.

The Managing Director of Inter-State Gas Company (ISGC), Mobin Solat, told the committee that Iran had completed about 900km pipeline from the gas field to Iranshehr out of a total 1,150km inside its territory. It was working on two sites of 250km from Iranshehr to the border at Gabd and about 60 per cent work had already been completed on this section.

He said the construction work on Pakistani side could not take off because engineering, procurement and construction firm required sovereign guarantees for mobilisation of machinery and workforce.

Petroleum Secretary Abid Saeed said the Pakistan government was required to issue a sovereign guarantee to Tadbir Energy of Iran, the EPC contractor, which obviously had been delayed until the new elected governments took over and direct the finance ministry to issue sovereign guarantee. Once the sovereign guarantee is issued, the financial close of the project would be complete to enable Tadbir Energy to carry out project mobilisation.

He said Pakistani companies had been short-listed to take the construction work in hand under the supervision of Tadbir Energy. The project cost had earlier been estimated at $1.5bn, but it had now been revised to $1.8bn because of escalation and currency devaluation factors. About $1bn would be provided through the gas infrastructure development cess (GIDC) for the project.

Abid Saeed said Iran would provide $500m finances for services, pipeline and compressors of the pipeline inside Pakistan territory.

Chairman of the committee Sardar Yousaf said that it appeared the cost of the project could further go up in view of the exchange rate. The petroleum secretary agreed.

Senator Jehangir Badar of the PPP said both the Iran-Pakistan and TAPI gas import projects were critical for the future of the country irrespective of any government in Pakistan.

Senator Sabar Baloch said the project had already been delayed and expressed his reservations over the performance of the ministry of petroleum and the ISGC, saying a lot of progress should have been achieved by now. He said the project was moving slowly even though it involved many international players.

The committee was informed that the steering committee on gas import projects had not yet formally approved the TAPI project. The project structure was different from the IP project, said Mobin Solat and added that four participating countries would invest minor amounts as equity in the project while the rest of financing would be arranged by a consortium of international petroleum companies.