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Great economic benefits would flow from it for Pakistan

Feb 25 - Mar 10, 2002

Pakistan and Iran signed a memorandum of understanding to undertake a pre-feasibility study for over a $4 billion onshore route of the gas pipeline from Iran to India through Pakistan.

The signing ceremony was held in Islamabad last week in which, Pakistan side was represented by Minister for Petroleum and Natural Resources, Usman Aminuddin, and Iran was represented by its Minister for Petroleum Bijan Namdar Zanganeh.

Addressing a joint press conference along with Minister for Petroleum and Natural Resources Usman Aminuddin after the MoU signing ceremony, the Iranian petroleum minister said the signing of the MoU for the pre-feasibility study was an important step and the study would be completed by the end of the current year.

An Australian exploration company BHP will conduct the pre-feasibility study for the onshore project. When asked why another feasibility study of the project is being undertaken when the report of such a study conducted only a few years back is available, the Iranian Minister said "it was a pretty old study and there was need to update the pervious study with new data. It was therefore decide to conduct a new pre-feasibility for the project."

A feasibility study for an overland gas pipeline, starting from the south of Iran, going across Sindh and ending on Pakistan border with India, had already been undertaken some years back, the project was shelved because India was reluctant to depend on an important source of energy, which would be passing through Pakistan, and thus in a way under Pakistan's control. The Indian preference then was for a pipeline that travels under the sea from the Iranian coast direct to the Indian coast, without touching, or even coming close to the Pakistani coast. A rough survey of this alternative proposal by Iran at that time revealed that, apart from other hazards, it would be far too costly, hiking up the gas price to a point where it would be uneconomical for India to buy it. Iran was obviously not willing to undertake a venture where there was no guarantee of a market for its gas exports. India feels that the earlier survey of the undersea pipeline was not done properly and if done again, would prove that it was equally economical. India also believes that an undersea pipeline would create a vested interest in Iran for naval cooperation with India rather than Pakistan. An important component of Pakistan's naval strategy for neutralising an Indian blockade involves commercial shipping remaining in Iranian coastal waters under Iranian naval protection from the Persian Gulf onwards, with the Pakistan Navy taking over escort from Jiwani on the Balochistan coast. With an undersea pipeline, in an Indo-Pak conflict, the Iranian navy would have to cooperate with the Indian navy to protect the pipeline.

Iran has commissioned two studies now for both overland and undersea routes, the results of which would presumably be sent to India for scrutiny and decision. If the overland feasibility turns out more economic and its security is guaranteed not only by Iran, but also by some international financing institutions, like the Asian Development Bank, from which loans are likely to be sought by Iran, great economic benefits would flow from it for Pakistan. Iran would pay a transit fee of $700 million annually to Pakistan. Second, Pakistan would get a good deal of gas though this pipeline, probably allowing a lowering of gas prices here. Third, a coastal oil refinery, as a joint venture with Iran, could be set up. Fourth, if this venture works successfully, ground would be prepared for a much bigger gas pipeline project from Turkmenistan to India, via Pakistan.

Replying another question regarding the Iranian government preference for the project by initiating alternatives of onshore and offshore routes, the Iranian minister said it was a worldwide practice to go for the cost-effectiveness. It is a mega project involving huge expenditure and so a consortium of International Bank will have to be formed to finance the over 4 billion dollar project, he added.

Minister for Petroleum and Natural Resources Usman Aminuddin said a technical delegation would soon visit Iran to discuss terms and conditions to increase the crude oil import for Pakistan. He said his Iranian counterpart has assured the government for importing gasoline from Pakistan and the two sides will soon work out modalities in this respect.

Regarding the other gas pipeline project options, Usman Aminuddin said the government policy is to focus on the country's own resources and the same time promoting the regional pipelines so Pakistan has fully supported Iran's request for the pipeline, "we have given no objection to the pipeline if passes through Pakistan to India," he added.

According to an official handout, the two sides also discussed the possibility of Iran's importing motor gasoline from Pakistan's importing additional quantities of crude oil from Iran currently it is at 13,000 barrels per day. Pakistan offered its expertise to Iran in establishing a CNG industry (for vehicular use) in Iran and it was agreed that Pakistan would send a technical delegation soon to Iran to study the matter further. Both sides expressed their concerns about the smuggling of petroleum products from Iran to Pakistan and agreed to take measures to stop this illegal trade, which causes a tremendous loss to the economies of the two countries.

The two sides agreed to examine further the feasibility of establishing a coastal refinery in Pakistan in the form of joint venture. Pak-Iran refinery project with a capacity of 120,000 BPD is planned to be set up at Khalifa point, Hub (Balochistan) at an estimated cost of $1.105 billion.