ISLAMABAD, Dec 24: The government is working on a divestment plan to withdraw shareholding of two gas utilities from Interstate Gas Company Limited (ISGCL) -- a company responsible for executing the Iran-Pakistan Gas Pipeline project -- to avoid ramifications of possible international sanctions against companies doing business with Iran. Sources told Dawn that Islamabad had been advised by international friends that the two gas utilities having one of the world’s largest integrated transmission networks in the country and dependent on substantial imports could be affected by international sanctions and hence it should take preventive measures.

Interstate Gas Company, registered in 1996 under the companies’ ordinance of 1984 as a private limited entity, with 51 per cent shareholding of Sui Southern Gas Company Limited (SSGCL) and 49 per cent of the Sui Northern Gas Pipelines Limited (SNGPL), was established to handle all pipeline gas import plans, particularly Iran-Pakistan Pipeline (IP) and Turkmenistan-Afghanistan-Pakistan-India Pipeline (TAPI).

The ISGCL has authorised a share capital of about Rs20 billion and is in the process of increasing its paid-up capital to cater funding requirements for the implementation of $1.25 billion 800km pipeline portion in Pakistani territories. It is also responsible for regular forecasts for long-term gas supply and demand and for developing a shortfall mitigation plan in a cost-effective manner.

Under US laws, foreign companies investing in or doing business with Iran’s oil and gas sector entities beyond a certain limit attract international sanctions because of Tehran’s nuclear programme.

The sources said the government was considering either to take over the shareholding of SSGCL and SNGPL through equity injection or offer its shares to the general public and private sector institutions to pay off investments of the two gas utilities and register the ISGCL as a private entity.

The government has already awarded a contract to a German firm for Front-end Engineering Design (FEED) study of the pipeline in Pakistan although SSGCL and SNGPL are well versed with the route, design, terrain, and other specifications of the proposed pipeline, these sources said.

The 800km pipeline inside Pakistan, these sources said, could also be used for pumping possible imported liquefied natural gas (LNG) from Gwadar Port to Karachi or Nawabshah in case the IP project fails to materialise.

The IP project is supposed to bring raw gas from Iran’s South Pars gas field in the Gulf onshore to Iran’s port city of Assaluyeh where it will be refined and processed for pipeline quality.

The 1,150km Iranian segment of the pipeline would flow gas from Assaluyeh to the Iran-Pakistan border, through the southern coastal area of Iran.

Iran has already constructed almost 80 per cent of the 900 km 56-inch diameter pipeline from Assaluyeh to Iranshehr, the capital of its Sistan province.

The pipeline has the capacity to carry 3.2 Bcfd of gas, out of which 2.1 Bcfd is meant for export.

Pakistan has announced to import about 1 BCFD of the gas in the initial stage of project implementation. Pakistan is to build a 42-inch diameter pipeline with a design capacity of 1.06 Bcfd along the coastal line from Iran-Pak border to the Pakistan gas off-take point near Nawabshah where it has to be connected with the existing gas distribution network.

The project cleared by the federal cabinet in 2009 required the Iranian gas to be used for power generation of about 4,000MW when completed in 2014-15. However, because of rising domestic gas shortfalls in current supplies, the government may have to use it to overcome the shortfalls.

Official estimates, however, suggest the gas coming from Iran would not be economically viable for domestic use because of its higher price. They said the current domestic price was $4.39 per mmbtu while the Iranian gas would cost $9 per mmbtu and could be used only for power generation.

The international lenders and development partners agree that Pakistan need to fast track cross-border pipelines because the years 2010 and 2011 were critical with gas gap exceeding 1.3 BCFD (billion cubic feet per day).

According to Munawar B. Ahmed, a former managing director of SSGC, the gas flows from IP project could not materialise in 2014-15 as forecast by the government.

“The route survey, feasibility, financing, EPC contract, etc., will take at least three to four years, with additional three to four years for construction and commissioning. So we cannot expect to have the first gas before 2017.”