ISLAMABAD: Pakistan and Iran signed on Saturday the formal gas sale-purchase agreement in Istanbul, Turkey.

‘The agreement has been signed in a third country because it is governed by French law, denying any advantage to Iran or Pakistan in case of any dispute,’ said the Adviser to Prime Minister on Petroleum, Dr Asim Hussain.

Raza Kasaeizadeh, the chairman of the National Iranian Oil Company, and Hassan Nawab of Pakistan’s Inter State Gas Systems signed the documents.

Dr Hussain said the gas rates were based on the Japanese crude cocktail (JCC) price — the average price at which Japan purchases crude oil from various markets.

He said the gas price would be $7 per MMBTU if the JCC price is $50 per barrel, $9.4 per MMBTU and $13 per MMBTU when the price would touch $70 and $100 per barrel respectively.

The adviser said the project was scheduled to be completed by 2013 and under the agreement, Pakistan would receive 750 million cubic feet of gas per day.

He said that the imported gas would be more costly than domestic gas, but it would be cheaper to generate about 4,000 megawatts of electricity.

The estimated cost of the project was $1.2 billion inside Pakistan from its point of entry in Balochistan up to Nawabshah, the hub of the country’s gas pipeline system.

The pipeline construction would be undertaken by SSGC and SNGPL under the supervision of an international project management consultant (ILF-Nespak JV).

According to ISGS, the consultant shall also undertake the bankable feasibility to firm up project costs and subsequently approach the market for project financing.

‘The designing phase is expected to take one year and the construction of the pipeline is likely to start in 2010,’ Mr Nawab said, adding that gas would start flowing in 2013.

The next target was to appoint a consultant and hire a contractor to build the pipeline.

The process could take a couple of months.

According to the ISGS, the project would be funded at a debt/equity ratio of 70:30, requiring a debt financing of $872 million and an equity investment of about $373 million.

‘The financing of the project will not be a serious challenge because we have had enough time to approach investors and financial institutions,’ Dr Hussain said, adding that public sector entities would also invest in the project.