Islamabad firm on Iranian gas

  0 comments   |     by Syed Fazl-e-Haider on July 21 , 2012

KARACHI - The possible entry of Russia into the proposed Iran-Pakistan (IP) project has raised concerns in Washington, which is strongly opposed to gas imports from Iran. Russia is ready to finance and build not only the IP pipeline but also the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline under a government-to-government deal reached between Islamabad and Moscow last month. US Ambassador to Pakistan Cameron Munter at the weekend reiterated that Washington had its reservations on IP gas pipeline project. 

Washington is pushing for tougher economic sanctions against Iran over its nuclear plans. US Secretary of State Hillary Clinton in February warned Islamabad of the consequences for the country’ weak economy of pursuing a pipeline from Iran as it could result in
US sanctions being extended to Pakistan.


The decision with respect to financing of IP and TAPI pipelines was taken at a meeting of Pak-Russia Joint Working Group on Energy. Financing has so far been the key issue causing delays to completion of the IP project. The Industrial and Commercial Bank of China (ICBC) in March refused to sign a contract for financial advisory services to raise funds for the IP pipeline apparently due to US pressure.

Pakistan has agreed to award contracts without bidding for both the IP and TAPI gas pipelines to Russia, which has agreed to build them at an accumulated cost of US$9.2 billion. Pakistani Petroleum authorities have submitted complete technical details of both projects to a visiting Russian delegation led by Deputy Minister for Energy YP Sentyurin, who last month called on Asim Hussain, Adviser to the Prime Minister on Petroleum and Natural Resources, in Islamabad.

 The country will have to waive Public Procurement Regulatory Authority (PPRA) rules if it awards the contracts for laying pipelines in its territory to Russian energy giant Gazprom. China may yet also join the project after entry of Russia in the IP gas pipeline, which could be extended to western China via the Karakorum highway The two countries are expected to sign a memorandum of understanding (MoU) on gas import projects in the next two to months. 

"Pakistan's government will ask the cabinet to waive public procurement rules for the award of pipeline contracts to Russia," The Express Tribune reported a participant of the meeting of Pak-Russia Joint Working Group on Energy as saying. Islamabad has so far been unable to arrange funds or find investors for the project, while Iran has almost completed work on its side of the border. Pakistan needs $1.5 billion to $1.8 billion to lay the pipeline on its side of the border and for related connectivity network.

Even so, after the withdrawal of ICBC, the cash-strapped country has been left with at least two financing options to build the IP pipeline. First, the government could set up separate accounts in Pakistani banks to collect a gas development cess levied to build the pipeline. Second, it may approach China, Russia or Iran for government-to-government contracts to construction of the pipeline in its territory from the Iranian border. Iran has already offered Islamabad financial assistance of up to $500 million for the construction.

Islamabad has still holding out hopes of building the IP pipeline because the country's own proven gas reserves are rapidly dwindling. Under the IP pipeline deal, Iran will initially transfer 30 million cubic meters of gas per day to Pakistan, eventually increasing to 60 million cubic meters per day. The pipeline will start from the onshore gas processing facility at Assaluyeh in Iran, to traverse a distance of 1,150km up to the Iran-Pakistan border, which will be built and operated by Iran.

The US has repeatedly asked Islamabad to abandon the IP pipeline in favor of the TAPI pipeline, which would supply gas at much lower rate than Islamabad agreed with Tehran under the IP pipeline deal.

 Turkmenistan on May 23 signed a landmark gas sale and purchase agreement (GSPA) with India and Pakistan for United States-backed TAPI gas pipeline.

The proposed 1,680km TAPI pipeline will start from the Daulatabad field in Turkmenistan and end at the Fazilka settlement at the border of India and Pakistan. The pipeline is intended to transport more than 30 billion cubic meters of gas annually from Turkmenistan to South Asian countries via Afghanistan.

Local analysts believe that the Taliban will be stakeholders in the proposed TAPI project as its fighters are capable of putting the whole scheme of gas transportation through Afghanistan at risk. Even if international developers like the Asia Development Bank agree to invest in the project, it will have to put aside a handsome amount as extortion for the Taliban to complete the project. And after completion, the gas seller and buyers will probably have to pay the Taliban to ensure smooth and uninterrupted gas supplies.  It was due to security concerns that Islamabad proposed that Turkmenistan supply gas via Iran under a swap arrangement by using the IP gas pipeline, instead of laying a pipeline through Afghanistan. Under this arrangement, an agreed volume of gas to be imported by Pakistan from Turkmenistan would be supplied to the northern provinces of Iran in return for which Iran will supply an equivalent gas volume through the IP pipeline to Pakistan.

Islamabad also offered a relatively less turbulent alternative route for the TAPI pipeline. Under this proposal, the TAPI pipeline would pass near the Reko Diq copper mine project in Chaghi district of Balochistan and onward to Gwadar port. The alternative western route reduces the length of the TAPI pipeline to 1,490 km compared with the proposed 1,680 km Herat-Kandahar route.  

Islamabad and Tehran have settled all the key issues relating to the IP project, including the GSPA and third-party certification for an uninterrupted supply of gas from the source field to Pakistan for 30 years. The US has offered Islamabad assistance with TAPI route as an alternative to the IP pipeline, but Islamabad is reluctant to walk away from the IP project for an insecure and uncertain TAPI project.

Local analysts argue that the implementation of the TAPI project will continue to depend upon peace in war-ravaged Afghanistan. It is naive to expect anyone to invest money in the project as long as its route remains insecure due to the Taliban insurgency. The analysts suggest that the country should stick to the project without abandoning the IP pipeline project under US pressure.



Syed Fazl-e-Haider ( www.syedfazlehaider.com ) is a development analyst in Pakistan. He is the author of many books, including The Economic Development of Balochistan, published in May 2004. E-mail, sfazlehaider05@yahoo.com

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