The issue was stated before a subcommittee of Senate standing committee on petroleum and natural resources that met in Islamabad on Monday to review and discuss the IPI pipeline project.
Sources said that Pakistan's Petroleum Ministry has written a letter to Iran requesting a meeting to negotiate the gas price. According to a presentation, Pakistan and Iran have proposed to schedule finalizing the gas sales purchase agreement (GSPA) in February.
The meeting was informed that Iran had first agreed to link the gas price to 44 percent of crude. It later revised it upward to 85 percent of crude as the price of crude rose. Iran's latest offer of 78 percent to crude price is still not acceptable to Pakistan which is seeking to negotiate a 10 percent discount on that price.
Iran has also sought review of the gas price after one year after the commencement of the project and subsequent revision in gas price would be made after every three years. Earlier, Iran and Pakistan had agreed to make first revision in gas price after two years after the commencement of the project and subsequently annual revision in gas prices.
At present, Iran is seeking a co-relation between contract price and weighted average price of Iranian exports to it buyers. Earlier, the two sides had agreed on correlation between Japan Cocktail Crude (JCC) and LNG. Iran also wants to replace the clause of 'Acts of War' with 'War between States' in force majeure element.
Pakistan's steering committee on IPI in its meeting held on January 15, had decided that imported Iranian gas should be dedicated to the power sector. Imported natural gas, even at Iran's latest price offer, remains economical, especially in comparison to other imported fuels such as furnace oil, LNG and coal.
The committee authorized the Petroleum Ministry to finalize the GSPA with Iran and, after finalization of negotiations, the matter should be brought before the Economic Coordination Committee (ECC) of the Cabinet for formal approval.
The meeting was informed of a projected gas shortfall of 10.34 billion cubic feet per day by financial year 2015. The indigenous gas supply has been projected at 2.16 billion cubic feet per day against the current gas supply of 4.3 bcfd. The demand for gas would stand at 12.5 bcfd by 2015.
As much as 48 percent of thermal power generation is based on furnace oil, out of which about 62 percent was imported at a cost of over $2 billion in 2007-08.
One bcfd gas generates an estimated 5,000 mw electricity that would result in huge relief to the electricity consumers. The Pakistani subcommittee was informed that recent studies have shown imported gas to be the most economical option against other imported fuels.
A pre-feasibility study has been undertaken on the IPI project and a bankable feasibility study and Front End Engineering Design (FEED) are required to approach prospective investors and financers and for tendering and procurement of materials, equipment and appointment of construction contractors.
The Pakistani Petroleum Ministry has estimated cost of $22 million to work on stage one (preparatory phase) that includes bankable feasibility study, social and environmental impact assessment (SEIA), supervision of detail route survey (GRS) and FEED. The second phase will consist of implementation, to cost around $33 million. For this work, consultant would be appointed, whose fee would be nearly 2 percent of project capital cost.
According to the proposed schedule of Petroleum Ministry, Iran and Pakistan will sign GSPA next month and award Engineering and Project Management contract by March. Tendering and appointment of construction contractor would be in October and construction would start in December 2009.
Addressing a meeting, Advisor to Pakistani Prime Minister on Petroleum and Natural Resources Asim Hussain said that all issues regarding IPI gas pipeline project had been settled with Iran, with the exception of pricing. He said that gas pricing would be finalized with Iran next month.
The Advisor said that the country is currently facing acute gas shortage and many industrial units had been closed as a consequence. He noted that gas reserves were rapidly depleting and added that the country required modern technology for drilling.