ISLAMABAD, Feb 21: Pakistan and Iran agreed on Thursday to kick off a feasibility study on overland route of $3.2 billion gas pipeline from Iran to India and expressed their full support to the project.

A formal memorandum of understanding to carry out the feasibility study would be signed on Friday by the Pakistani and Iranian oil ministers.

Iran also agreed to purchase around 250,000 tons of surplus motor spirit per year from Pakistan subject to successful negotiations on pricing and mechanics of the deal to be finalized on Friday.

Sources said that the two sides realized to put on hold $1.1 billion Pakistan-Iran refinery project for the time being and pursue it at a later stage.

A 10-member Iranian delegation led by oil minister Bijan Namdar Zanganeh is in Pakistan on a two-day visit. On first day, the delegation besides detailed discussions with Pakistani ministers for oil and commerce also called on President Pervez Musharraf.

Jehangir Bashar, senior joint secretary and spokesman of the petroleum ministry told Dawn that the two sides discussed in detail the gas pipeline and expressed their full support to the project.

Authentic sources said that Iran is proposing a tripartite agreement for the gas pipeline from Iran to Pakistan and onward to India and involvement of experts from three countries in the feasibility study of overland route.

Mr Bashar said: “We assured them to facilitate the pipeline project from whatever way we can as repeatedly stated earlier and ensured uninterrupted supplies of gas”.

Asked whether the Iranian oil minister reported any progress about his interactions with Indian authorities on the pipeline project, Bashar said Iran and India were carrying out a study on offshore pipeline route.

Mr Bashar said that oil ministers of Pakistan and Iran would be speaking at a joint news conference on Friday to announce further details on the subject including the pipeline feasibility and motor spirit deal.

The Iranian proposal envisaged laying of 2,670-km on-land pipeline with a capacity of 3,260 MMCFD (million cubic feet per day) and estimated capital cost of $3.2 billion. Of this included 1,000 MMCFD gas for Pakistan.

The gas pipeline will run around 700km in Pakistan, 1,120km in India and 850km in Iran and initial estimates suggest around $700m annual royalty to Pakistan.

He said that during the meeting, the two oil ministers did not discuss prices and mechanics of the motor spirit deal as these would be deliberated upon at the officials level on Friday.

An official statement said that the two sides mainly focused on Iran-India gas pipeline project and various aspects of the project and “termed it the most economically viable for the three countries”.

During the meeting with President Pervez Musharraf “the Iranian delegation took keen interest to pursue the proposed gas pipeline project and the commencing of a pre-feasibility study of the overland route”, said an official announcement.

“Iran also expressed the desire to purchase the entire quantity of surplus motor gasoline produced in Pakistan”, the announcement said.

The president reiterated Pakistan’s full support to the gas pipeline project to India and the export of motor gasoline to Iran. In this regard the president directed the petroleum ministry to take all steps for facilitating the feasibility study and export of motor gasoline in coordination with the Iranian petroleum ministry.

The president said that Pakistan valued its long standing fraternal relations with the Islamic Republic of Iran. Pakistan placed great emphasis on the oil and gas sector as a vital component of its economic revival plan and looked forward to enhance cooperation with Iran in all sectors particularly oil and gas, said the president.

In the ministerial level talks, the two sides also agreed to take all possible measures for export of gasoline to and import of crude and diesel oil from Iran. The two sides also agreed to take steps to eliminate cross-border smuggling of petroleum products causing a huge loss to both economies.

Pakistan also offered technical cooperation to promoting compressed natural gas (CNG) industry in Iran. The visiting side said they would invite the Pakistani experts of CNG to evaluate promotion of this industry in Iran.