ISLAMABAD: While the government appears to be trying to find a way out of the Iran-Pakistan gas pipeline project, it is reported to have at least made up its mind not to use the $500 million offered by the neighbouring country as loan for laying the pipeline in Pakistani territory.

Earlier this year Iran agreed to partially finance the pipeline by providing the funding of $500m of the total cost of $1.5 billion. An agreement for $250m was signed during President Asif Ali Zardari’s visit to Tehran in February, while there was an understanding on further provision of $250m for the project.

Officials now say that Pakistan is no more interested in utilising the loan.

The development comes amid reports that Pakistan may be wriggling itself out of the project, because of US sanctions. Prime Minister Nawaz Sharif made his government’s intentions clear when he told reporters in Saudi Arabia that the United States had conveyed to his government that the gas pipeline project could invoke sanctions.

The prime minister’s statement was important from two aspects — it came while the Foreign Office awaited US response to a ‘non-paper’ given to Secretary of State John Kerry and, secondly, it was made in Saudi Arabia, one of the main opponents of the project.

Questions were also raised over presentation of the non-paper on the project to the US, which was seen as a move to formally invite objections.

Foreign Office spokesman Aizaz Chaudhry said: “The rationale for giving a non-paper to the US side was to convey our perspective, with particular reference to whether or not this project would attract US sanctions.”

The government’s legal team and the Foreign Office had already ruled that the project did not come under US sanctions on the Iranian nuclear programme.

“In our legal assessment, the US sanctions do not apply on this project. Our side has shared our perspective and understanding of these issues with the US side,” the spokesman said.

The legal study carried out by the government had pointed out that Turkey, Azerbaijan and Armenia continued to import gas from Iran and from the same company (National Iranian Oil Company) from which Pakistan intended to buy gas.

Moreover, the legal experts had said that the sanctions imposed so far were related to oil-based products.

The Foreign Office’s institutional point of view was that the decision whether or not to continue with the project was a political and not a legal issue.

But still, a source said, one of PM Sharif’s aides insisted on drawing the US into the debate.

Iran’s newly elected President Dr Hassan Rouhani had at his inauguration, attended by President Zardari, asked the West to drop the sanctions and speak the language of respect.

The US House of Representatives passed a new bill last week for tightening the sanctions on Iran.