Search is expected to move quickly as the pipeline will be built byend of year writes Arthur Beesley

Bord Gáis has appointed Schroder Solomon Smith Barney to find investors for its new gas interconnector with Scotland.

It is thought that potential partners may be required to pay up to €140 million (£110.3 million) for an interest in the pipeline, about half its projected cost.

The process may lead to the sale of a share in its existing sub-sea pipeline to Scotland, which is operating near full capacity.

The search for an investor is expected to move quickly because the new pipeline will be built before the end of the year.

Permission to build the €279 million gas connection was granted on the basis that the State company secured private sector investment. While that condition was laid down a year ago, the process began in earnest only in recent weeks.

Senior sources said private sector backing for the pipeline may be difficult to secure because the second interconnector will operate at full capacity only when demand grows.

Thus, the revenues investors could expect will be limited in the short to medium term. To improve the prospects of securing an investor, the deal is likely to be bundled with a part-sale of the existing pipeline or a revenue licencing arrangement.

A Bord Gáis spokesman said a sale was "a very likely possibility"but declined to speculate on a valuation of the stake for sale.

The scale of the investment being sought for the new pipeline is unclear.

However, sources have said that a 49:51 breakdown is likely to be considered.

That suggests that an investment up to €140 million might be needed although the scale of the investment must be measured against likely wholesale revenues.

New tariffs sanctioned last November by the Government cut the rate of return from gas sales, diminishing potential revenues.However, the tariffs paid by industrial and electricity generation customers were increased marginally.

The pipeline project was cleared by the Government only after a bullish Economic and Social Research Institute study predicted a shortfall in supplies next winter. This was due to the depletion of the Kinsale gas field and the rapid growth in demand for gas.

Bord Gáis is investing €1 billion in the biggest expansion of the national gas grid since the Kinsale field was discovered in the 1970s.

It plans a new pipeline linking Dublin and Cork via Galway and Limerick.

Another will deliver gas from the Corrib field through Co Mayo to Galway.