TEHRAN - Iran has said that it has cancelled a planned $500 million loan to Pakistan to build part of a pipeline to bring natural gas from Iran.

Deputy Oil Minister Ali Majedi said Iran has no obligation to finance the Pakistani side of the project and also didn’t have the money. Majedi’s comments were posted on the oil ministry’s website, shana.ir, Saturday.

He dismissed pretexts by Pakistani officials that sanctions against Iran are hampering the construction of the Pakistani side of the project.

“Such remarks are unacceptable and Pakistan is expected to meet its obligations in this contract,” said Majedi.

Majedi said some oil companies have voiced willingness to build the Pakistani side of the pipeline, he told a press conference in Tehran.

According to Iranian media, the minister said Tehran will demand compensation if Islamabad fails to take Iranian gas by end of next year.

Iran’s former president Mahmoud Ahmadinejad had pledged the loan. The Iran-Pakistan pipeline is designed to help Pakistan overcome its mushrooming energy needs.

Iran has already invested over $2 billion to construct the Iranian side of the pipeline. But there are serious doubts about how Pakistan could finance the $2 billion needed to construct the pipeline, which also faces US opposition.

Pakistan has welcomed an Iranian offer to approach third parties, including European companies, to finance the project.

“Pakistani officials were told in recent talks that, given the sanctions, Iran is not able to finance construction of the pipeline (in Pakistan) and has no obligation to do so,” the minister said.

Majedi complained that Pakistan has done little to construct its own section of the project. Under a valid contract, Pakistan is required to finish construction of the pipeline on its territory by the end of 2014.

“If a contractor is chosen today and pipeline construction begins today, it will take four years to complete it. Should Pakistan fail to take gas by the end of next year, Iran will demand compensation under the terms of the contract,” he said.

The Iranian oil minister called on Pakistan to seek assistance from European companies for completing a pipeline under construction to carry gas from Iran to its eastern neighbor.

“Iran’s Petroleum Minister Bijan [Namdar] Zanganeh recommended Islamabad to demand help from third-party companies for the completion and acceleration of the project on the Pakistani soil,” Majedi said.

“[Iran’s] petroleum minister has proposed the presence of European companies in IP project to Pakistanis. It is even possible that these companies purchase gas from Iran as intermediary and sell it to the Pakistanis,” he added.

Majedi said Pakistani Federal Minister for Petroleum had welcomed this proposal.

Majedi said Pakistan is obliged to fund the project, adding: “Due to our connections in some oil companies, we have introduced European companies to Pakistan gas company to help Pakistan push ahead with this project.”

Responding to a question, Majedi said India has not followed up on its intention to join Iran-Pakistan pipeline, adding that New Delhi has not clearly backed out of the project.

“During their talks with us, the Indians have expressed their willingness to get gas directly through a subsea pipeline. They have never ruled out their presence in the IP project, nor they have taken any step forward,” he said.

The US has opposed the project but leaders of both Iran and Pakistan have vowed to implement what they refer to as the ‘peace pipeline’.

On December 10, Iranian authorities announced that the country will not supply Pakistan with natural gas at a discount price.

Reducing the price of gas to be delivered by the Iran-Pakistan pipeline, extending time for building Pakistan’s side of the pipeline and financing about $500 million by Iran were suggested by Khaqan Abbasi in the meeting.

He said that Pakistan is committed to building a multi-billion-dollar gas pipeline from neighbouring Iran, but the threat of international sanctions makes the task difficult.

The Iranian oil minister had previously said that he is not optimistic about Tehran’s gas exports to Islamabad.

APP on Nov 28 quoted Shahid Khaqan Abbasi as saying that Pakistan will find an opportunity to complete the proposed gas pipeline project within a year.

Following inking of a deal on Tehran’s nuclear programme between Iran and world powers, the current conditions bring the proposed Iran-Pakistan gas pipeline project closer to materialisation.

The peace pipeline project was originally initiated between Iran and Pakistan. Later India expressed an interest in joining this project.

Signed initially in 2009 between Iran and Pakistan, the projected 2,800-kilometre pipeline will extend from Iran’s giant South Pars gasfield to Pakistan. Iran has already built 907 kilometres of its 1,227-kilometre share of the pipeline.