Iranian President Mahmoud Ahmadinejad is expected to sign an Inter-Governmental Cooperation Agreement during his coming visit to Islamabad under which Tehran will provide Pakistan $500 million for a bilateral gas pipeline project.
Iran plans to extend financial and technical assistance for laying the Pakistan section of the proposed gas pipeline, official sources said.
The agreement will be signed on the margins of Ahmadinejad's visit to Pakistan to attend the Developing Eight Summit.
The Iranian government will provide a loan of $250 to Pakistan and another $250 million will be arranged through Iranian commercial banks for engineering, procurement and construction of the Iran-Pakistan pipeline, the sources said.
According to a plan proposed by Tehran, Pakistani and Iranian companies will form a joint venture to lay the pipeline.
Earlier, China and Russia had shown interest in financing and building the pipeline if their companies were awarded contracts without bidding.
The US, which has imposed wide-ranging sanctions on Iran over its nuclear programme, has been pushing Pakistan to abandon the gas pipeline project.