ISLAMABAD: A consortium led by the Industrial and Commercial Bank of China (ICBC) has ‘run away’ from providing financial advisory services for the Iran-Pakistan gas pipeline project apparently because of the US opposition to the plan and forced the government to look for alternative financing options.

“It is apprehended that a probable reason for not signing the agreement (to act as financial adviser for the project) till date could be geopolitical situation in the region,” a summary presented to the Economic Coordination Committee (ECC) of the cabinet on Tuesday said.

A meeting of the ECC presided over by Finance Minister Dr Abdul Hafeez Shaikh was informed by Petroleum Secretary Mohammad Ejaz Chaudhry that the Chinese consortium’s leader had “run away from the project”.

It was informed that on the directives of decision-making forums, “a top class financial adviser had been appointed through international competitive bidding following procurement rules”.

The contract with Habib Bank and Ernst & Young Ford Rhodes Sidat Hyder (EYFRSH) — two other members of the advisory consortium — had been signed by Inter-State gas Systems (ISGS), a state owned company, in the first week of January but the ICBC had been delaying the signing of a formal agreement. Now, the HBL and the EYFRSH were also not giving a clear response, the meeting was informed.

“The petroleum ministry informed that the existing parties of the ICBC and HBL are showing less interest in the IP project, so the ECC may go for other options,” an official statement issued after the meeting said.

The ‘front-end engineering design’ feasibility and a detailed route survey are being done by a consortium comprising the ILF of China and Nespak and are expected to be completed by June, on the basis of which bids will be invited for the 800km pipeline inside Pakistan for an engineering, procurement and construction (EPC) contract at an estimated cost of $1.5 billion.

The project involves a debt-equity ratio of 70:30 with the government having a majority share in equity.

Tender documents have been issued to pipeline suppliers and EPC contractors so that the contracts can be executed by the third quarter of this year. The contracts will form a major portion of the funding requirement for the project.

It has been proposed that as an alternative to the arrangement with the Chinese bank, the government should route the Infrastructure Development Cess recently imposed on gas consumers to Pakistani banks who should then create a fund with the government. The funding can be routed to the ISGS to meet financial requirements of the project that would help reduce the tariff for imported gas. Initial estimates suggest that the cess will be sufficient to meet the project’s funding requirements.

The ECC was requested to allow cancellation of the ICBC contract and to approach the second bidder, comprising the United Bank, Burj Capital Pakistan, Eco Trade Development Bank, Fieldstone Group and Islamic Corporation for Development of Private Sector, to sign a contract to provide debt and private equity for the project on similar terms.

The committee was also urged to consider government-to-government offers from China, Russia and Iran for providing funds for the project.

Iran has offered $300 million and Russia has offered to provide funding if the EPC contract is given to its companies without bidding. To accept the options, the government will have to bypass the Public Procurement Regulatory Authority’s rules.

The ECC constituted a committee comprising ministers for petroleum and water and power, State Bank governor, deputy chairman of the Planning Commission and secretaries of economic affairs, finance and petroleum to prepare recommendations within four days so that work on laying the pipeline could be started by September to meet the completion deadline of December 2014.

FERTILISER PRICE: The ECC approved a 23 per cent increase in the price of fertiliser for farmers from Rs1,300 to Rs1,600 per 50kg bag.

The committee allowed the Pakistan Agricultural Storage and Services Corporation to offload 450,000 tons of wheat -- of the 1.28 million tons of stock -- at Rs950 per 40kg to private parties and millers for which the government will provide a subsidy of Rs4.5 billion.

The meeting was informed that Iran had offered to purchase one million tons of wheat under a barter deal in return for fertiliser and iron ore, but was asking for fresh crop to be harvested from April 1.

RAILWAY LOAN: The ECC approved a Rs6.1 billion loan from commercial banks led by the National Bank to the railways on government guarantee for the repair of 96 locomotives.