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Pak-Iran joint venture in oil refining

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From Shamim Ahmed Rizvi, Islamabad
Jan 17 - 23, 2000

Although Chief Executive General Pervez Musharraf's recent visit to Iran was brief, it provided him with an important first hand opportunity to assess the current state of relationship with a country which used to be our close ally and also to explore the possibility of removing irritants in their relationship and restoring some of the old warmth, mutual trust and confidence the two countries had shared over the years.

Relations with Iran suffered a setback in recent years owing to a number of factors, beginning with that country's reservations about our alleged dependence on the US and our special links with the Gulf Cooperation Council states during the period or Iran-GCC tensions and bitterness and culminating in the conflict of interests in Afghanistan and Central Asia.

At the conclusion of the visit, General Pervez Musharraf expressed the hope for promotion of broad cooperation between the two countries in the context of their tradational friendship, which he maintained was fundamental to regional peace and security. On his part, President Khatami described bilateral relationship as deeply rooted and ever-lasting.

Significant developments have taken place after this visit to expand business and commercial ties between the two countries. One of them is the latest announcement by the Minister of Petroleum and Natural Resources that a Pakistan-Iran joint venture refinery will be built at Hub in Balochistan is a welcome stop. The proposed refinery, having hydra-craker and "coker" units, will help refine imported crude oil from Iran into high-speed diesel and coke, which will be used to bridge the gap for such fuels in the country. While highspeed diesel has multi-purpose use and is in much demand in the country, the production of coke from the refinery and its use in brick klins is an innovative idea which would help reduce dependence on less environment friendly fuels.

The proposed venture will also go a long way in promoting economic cooperation between Pakistan and Iran, which suffered in the past few years because of political misunderstanding between the two countries over Afghanistan. The fact that the proposed refinery is to be set up in Hub, in Balochistan province, is also laudatory. This will provide an economic impetus to this least developed province in the country and offer employment in a region where such opportunities are scarce. More important, the proposed refinery will help meet the growing demand of high speed diesel. The two pronged strategy in relation to the oil and gas sector is the right one. On the one hand, the government is trying to promote oil and gas exploration within the country with some success. On the other, it is turning to friendly regional countries for its domestic oil requirements so that the costs are kept reasonably low and, at the same time, there is some value addition at home instead of abroad.

The idea of encouraging the use and alternative fuels for traditional industries like brick kiln factories is encouraging in that it will help keep the problem of pollution in check. The challenge for the government now is to go full-steam ahead with implementation of the project and not to allow any bureaucratic red tape or slothfulness to delay its execution.

According to reports Pakistan is also likely to allow transit pipelines to its neighbours particularly India for natural gas import to tap about $600 million worth of annual revenues—originally an Iran-India project which ran into snags due to hostile regional environment a couple of years ago.

A proposal for Iran to India gas pipeline through Pakistan is also under active consideration. It would generate additional revenues in foreign exchange as transit fee besides Pakistan's having an option of import of gas to meet its winter shortage, "Minister for Petroleum and Natural Resources Usman Aminuddin said here at a press conference last week.

"We are examining and developing the proposal for transit importlines, which are expected to generate $ 500-600 million annual income for the country," the Petroleum Minister said, adding Pakistan itself " may not need to import natural gas for another six to seven years" because of over seven TCF of new gas discoveries at home.

In view of our old background of deeprooted ties, it should not be beyond the diplomatic ingenuity of either country to work out a meeting of minds on their respective interests in Central Asia and Afghanistan, particularly within the framework of ECO. The potential for economic cooperation with the Central Asian states and the prospects for different transit routes (involving export of Iranian gas and oil) are varied enough to permit harmonious regional cooperation as long as regional states do not become a cat's paw of outside powers.