Sep 21 - Oct 04, 2009

The experts of Pakistan and Iran recently discussed at a meeting in Islamabad the technicalities involved in the construction of the Iran-Pakistan (IP) gas pipeline that will be built under the segmented approach under which Iran will construct the pipeline in its area and Pakistan will construct in its own area from Iran border.

Pakistani President Asif Ali Zardari and his Iranian counterpart Mahmoud Ahmadinejad signed a $7.5 billion agreement in Tehran on May 23, finalizing the deal to transfer gas from Iran to Pakistan. Under the deal, Iran will initially transfer 30 million cubic meters of gas per day to Pakistan, but will eventually increase the transfer to 60 million cubic meters per day.

The Iran-Pakistan-India (IPI) project was estimated to cost 7.5 billion dollars but only 1.2 billion dollars would be required for the Iran-Pakistan venture due to its overall reduced volume and size.

Last month, the visiting Richard Holbrooke, the US President's Special envoy for AfPak region, had pledged for an all-out support to the country in ensuring the energy security. Critics say that US involvement in resolving the country's energy crisis is an attempt to foil IP gas pipeline project. As the US is opposed to the IP gas pipeline project, hence it is luring Pakistan away from the project by offering it help to overcome its acute energy shortage.

After civilian nuclear cooperation ruled out by the US, Islamabad has finalized the route of IP gas pipeline that would be built on land route through southwestern Balochistan province to Nawabshah in Sindh province. Islamabad plans to initially arrange around $12 million financing, through National Bank of Pakistan (NBP), to conduct a bankable feasibility study of the project.

The visiting Holbrooke however last month denied that he had anything to do with IP pipeline project saying neither he had discussed the issue of IP pipeline with any of the functionaries in Islamabad nor it had any link to his job. Local analysts however believe that there is some linkage between the US assistance and the IP gas pipeline project.

Washington had conveyed to Islamabad between the lines that Pakistan should possibly avoid import of gas from Iran through the proposed pipeline, according to the reports published last month in local media. The reports claimed, citing official sources privy to the most of the Holbrooke's engagements, that Dr Asim Hussain, former advisor to the Prime Minister on Petroleum and Natural Resources, was also forced to resign recently because he had been pushing the IP project vehemently. The reported objections raised by the intelligence agencies were also due to covert, if not unequivocal, US opposition to the IP project. Washington has reportedly expressed disappointment at Islamabad's un-preparedness to deal with the current energy crisis.

Pakistan is currently facing an electricity shortfall of more than 3,000 megawatts leading to frequent and long blackouts in the country. The country's economy is in virtual recession as gross domestic product (GDP) growth in the last fiscal year 2008-09 of two per cent was barely enough to keep up with population growth of nearly two percent. The country's furnace oil import bill is projected to rise by 237 percent by 2012, to $18.641 billion, as compared to $4.334 billion the country had to pay from 2004 to 2007.

Pakistan has taken a major initiative through the IP gas pipeline for using much of the gas thus acquired to produce electricity. Officials in Islamabad believe that the delay in the implementation of the IP project is causing the country a daily loss of $5 million, as import of 750 mmcfd of natural gas from Iran would support the production of 4,600 megawatts of electricity, for which 7.5 million tonnes of HSFO (high-sulphur fuel oil) is required.

The border price of IP gas based on the current price of Brent would be $8.05/mmbtu, while the country will have to pay $11.95/mmbtu based on the current price of HSFO.

India definitely quitted the gas pipeline deal, Tehran Times reported, citing Muhammad Bux Abbasi, Pakistan's ambassador to Iran. After India's withdrawal, it has now become a bilateral project between Iran and Pakistan. India can join the project any time, according to Petroleum Minister Naveed Qamar. Once the pipeline project is constructed, a separate pipeline would have to be constructed for India. Initially the government would pay all the expenditure of the project. However, later on private sector could also be invited to join the project.

Pakistani authorities have cancelled the award of the contract to the German company and instead would prefer a local firm to do this kind of a job. Since the IPI project stood hugely slashed because of India's walkout under the American pressure in exchange for US civilian nuclear energy, the consultancy contract would also be affected accordingly. Previously, it was to cover the area from Iran-Pakistan border to Pakistan-India border whereas it would not be the case now.

As Gas Sales Purchase Agreement (GSPA) on IP was signed despite strong opposition of United States, hence Pakistan would not be able to secure funds for the project due to US opposition, according to the experts. Islamabad plans to secure funds from a consortium of domestic and international investors in executing IP gas pipeline project. The UAE state-run International Petroleum Investment Company (IPIC) and Chinese National Petroleum Corporation (CNPC) have also shown interests in the project with UAE's IPIC offering 60 percent investment for the project.

Russia' energy giant Gazprom is keen to participate in a pipeline to carry Iranian gas to Pakistan, according to a report recently published in the Kommersant daily. Moscow sees the pipeline as a means to divert Iranian gas from competing with Russian exports on the European market. Russian exports satisfy over one quarter of Europe's gas needs, but the European Union has sought to lessen its dependence with the construction of the Nabucco pipeline to pump Caspian Sea gas to Europe, which would bypass Russia. The Iran-Pakistan pipeline could deprive the Nabucco project of one possible source for gas supplies, the report said.

Under the Pak-Iran deal, the 2100-kilometer pipeline would enter Pakistan from its border near Gwadar in insurgency-hit Balochistan province.

A stable Balochistan is essential for the success of any trans-regional gas pipeline project, as greater part of the pipeline will have to pass across the province. Analysts believe that without restoring peace and stability in the province, the IP project is likely to meet the same fate of Turkmenistan-Afghanistan-Pakistan (TAP) gas pipeline project, which is still in doldrums due to uncertain security situation in Afghanistan.

Iranian government is reportedly facing opposition from political circles over IP pipeline deal, which the critics believe not viable financially and strategically. Iranian Oil Ministry had clearly informed its government of Jundallah threat to the proposed gas pipeline, the greater part of which has to pass through Pakistan's southwestern province of Balochistan where Jundallah Group is reported to have roots. Iran closed its border with Pakistan following a suicide bomber attack on a mosque in Zahidan on May 28, which took over 20 innocent lives and injured many people. Jondullah claimed responsibility for the blast.

Jundallah Group has been a source of worry for Tehran fearing that Islamist Group may create hurdles in materializing the project.

The diplomatic tension between the two countries mounted at a time when there was no outstanding issue impeding the project for laying a gas pipeline between the two countries. Under the IP pipeline deal, the government of Pakistan would be responsible to protect the gas pipeline in its territory.