Pakistan Intends to Raise Funds Through Cess for IP Pipeline

Pakistan has given firm assurance to Iran under the government-to-government cooperation agreement that it will collect $1 billion through gas infrastructure development cess from consumers to finance the construction of gas pipeline at home, which will lead to a reduction of 20 to 25% in tariff after gas imports start in December 2014, The Express Tribune has reported.

Following this move, Iran has committed to providing a loan of $500 million for laying Pakistan’s portion of the Iran-Pakistan (IP) pipeline, the newspaper reported citing an official of the Ministry of Finance.

Total cost of the pipeline, to be constructed by Iranian firm Tadbir Energy, has been projected at $1.5 billion.

According to the finance ministry official, the cess will be treated as equity in the project and the government of Pakistan will be the owner of the pipeline. This equity is expected to lead to savings of around $360 million in interest charges and reduction of around 20 to 25% in overall tariff after the start of gas flow. The debt part of the project will comprise 30 to 35% of the pipeline cost.

Financing through cess will slash the dollar component of the cost as a substantial percentage of tax will go to local contractors in Pakistani rupee, Express Tribune said.