By Rebecca Conway and Qasim Nauman
ISLAMABAD (Reuters) - A top Pakistani government body said that China's largest bank is backing away from a long-running plan to build a gas pipeline from Iran to Pakistan, a project that the United States has strongly opposed.
The Industrial and Commercial Bank of China (ICBC), the world's most valuable lender, had previously submitted a bid to act as financial adviser for the estimated $1.25 billion project, according to a Pakistani finance ministry official.
But the bank is "showing less interest," the Economic Coordination Committee of the Cabinet said in a statement issued late on Tuesday.
A Pakistani finance ministry official said the fear of U.S. sanctions on companies dealing with Iran appeared to be weighing on the Chinese bank.
"I don't think they are in the mood to brave American pressure and the threat of sanctions from any dealings with Iran," the official told Reuters, requesting anonymity because he is not authorized to speak to the media.
The United States has said Pakistan should be wary of committing to the proposed gas pipeline because sanctions could hit Pakistani companies.
Western powers believe Iran is using its nuclear program as a means to build weapons. Tehran says it needs nuclear-generated electricity.
Pakistan is plagued by chronic electricity shortages that have sparked demonstrations and battered the weak civilian government.
If the ICBC formally pulled out of the project, the ECC said there were four options: funding through a new tax, finding more financing banks, government-to-government agreements with Russia or China to fund the entire project or a government-to-government agreement with Iran.
A spokesman for the Pakistani Ministry of Petroleum, however, said ICBC was not walking away from the project.
"ICBC is still engaged in IP (Iran-Pakistan) project and the negotiations are still going on," Irfan Ashraf Qazid said.
"There were several options presented by the ministry regarding funding of this IP project but somehow the press took it as if these options were being presented because ICBC was trying to back out, which was not the case."
There was no immediate comment from the ICBC in Beijing.
Pakistan's Foreign Minister Hina Rabbani Khar told reporters ICBC's reluctance would not impact the project.
"There can be, always are multiplicities of funding sources which are available for any project," she said.
"This is a fairly viable project and we hope and we do not see any problem in trying to find ways and means of ensuring its funding."
Islamabad and Tehran agreed on a gas pricing mechanism for the 800-km long project in January, soon after U.S. sanctions were imposed, but the terms were never made public.
Like the pricing mechanism, much of the pipeline's details are unclear.
(Additional reporting by Chris Allbritton and Mahawish Rezvi in ISLAMABAD, and Teril Jones in BEIJING; Editing by Sanjeev Miglani)