Pakistan plans to borrow $300 million from local banks to build gas pipeline for Iran gas deal opposed by US

Karachi: Pakistan plans to borrow $300 million from local banks to build a pipeline that will carry natural gas from neighbouring Iran, easing its worst energy crisis that is curbing economic growth.

State-owned companies will provide about $210 million in equity for $1.3 billion pipeline, said Mobin Saulat, acting managing director of Inter State Gas Systems Ltd., which is responsible for gas pipeline project. Pakistan may approach foreign companies including OAO Gazprom, International Petroleum Investment Co. & China National Petroleum Corp. for rest of financing, he said. “We’ve done market testing to see appetite among local banks,” Saulat told Bloomberg in interview. “The signal we’ve got is that around $300 million can be raised from a local consortium.”

Domestic funding is crucial because U.S. and international sanctions against Iran, imposed over concerns that the country is trying to build nuclear weapons, are likely to block Western and multilateral funding. Pakistan is pursuing Iran gas deal as its ties with the U.S. have come under strain this year following standoff over Pakistan’s detention of an American CIA contractor who had killed two Pakistanis, and May assault by U.S. troops that killed al-Qaeda leader Osama bin Laden in Abbottabad.

Islamabad- based Inter State Gas is responsible for completing gas pipeline by year 2014, a deadline agreed on by two countries last year after political, security concerns delayed project by a decade. Under June 2010 accord, Iran will provide about 21.5 million cubic meters of gas a day to Pakistan for 25 years. It can be extended by five years and volumes may rise to 30 million cubic meters a day.

U.S. last year tightened its sanctions, which target Iran’s energy sector, and President Obama supported an alternative gas pipeline project from Turkmenistan to Afghanistan, Pakistan & India, that would bypass Iran. Economic sanctions by UN, EU and U.S. over Iran’s nuclear program have discouraged investment in that country.

“So far, sanctions primarily focus on development of fields,” Saulat said. “Iran is currently engaged in exporting gas to Turkey through a pipeline. There was never a pipeline-specific sanction.” State-owned companies that may collectively buy a majority stake in planned pipeline include Government Holdings Ltd., Sui Southern Gas Company SSGC & Sui Northern Gas Pipeline SNGP, he said.

Gazprom, Russian gas-export monopoly, International Petroleum Investment, an arm of Abu Dhabi government and CNPC have shown interest in the venture, Saulat said. Gazprom may fund and help build 780-kilometer pipeline, he said declining to elaborate. Bloomberg says a press officer at Gazprom, who couldn’t be identified in line with company policy, declined to say whether company is interested in the project.

Pakistan’s gas shortfall is forecast to reach 2.22 billion cubic feet a day in current fiscal year 2011-12, according to government data. It forced government to ration supplies to cars that run on CNG, while big cities faced load shedding for about 12 hours a day. Last year, 53% energy came from natural gas, 30% from oil, rest from coal, nuclear, hydropower, according to BP Plc data. Pakistan produced 39.5 billion cubic meters of gas in 2010, or 3.8 billion cubic feet a day, BP says.

Inter State Gas invited banks last month to help arrange funding and plans to seek bids for construction next month, Saulat said. Pipeline will carry gas from South Pars field via Baluchistan to off-take point in Nawabshah, Sindh. “We are doing things in parallel for expeditious completion of this project,” he said. “There is a huge shortfall and we need to work on many options to meet that growing demand.”

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