Russian interest brightens chances of initiating this giant project

SHAMIM AHMED RIZVI, Bureau Chief, Islamabad
Feb 26 - Mar 04, 2007

During his meeting with Iranian President Ahmed Nejad in Tehran last week in connection with his Middle East peace initiative, President General Musharraf availed the opportunity to discuss Iran-Pakistan-India (IPI) gas pipeline project. Both the leaders agreed that after having reached an agreement on pricing formula, work should be started on the proposed project on top priority basis.

After protected negotiations, an understanding was reached at the expert-level on the gas pricing formula for the purchase of Iranian gas by Pakistan and India in the tripartite talks, which concluded in Tehran last month. That the three sides have also agreed to give response within a month to the price formula indicates the urgency with which they want to move, as India and Pakistan are concerned about the surging energy demand for their fast growing economies.

The understanding on price formula is a major breakthrough towards finalizing the gas pipeline project for which talks were initiated as far back as in 1994. Once the formal agreement on pricing formula is reached, Pakistan and India are expected to work out the transit fee for a pipeline passing through Balochistan and Multan into India. This will yield substantial earnings for Islamabad, apart from meeting the rising energy needs of the two South Asian countries.

The proposed IPI gas pipeline will have a length of 2,700 kilometers and is expected to transport 150 million cubic meters of gas per day for 25 years from Iran's southern Pars fields to India from 2009-10 onwards. Pakistan would receive 60 million standard cubic meters of gas a day from the same source. Termed as a peace pipeline, the IPI project aims at helping the two energy-starved South Asian countries meet their growing energy needs. Pakistan will also earn up to $ 700 million a year as transit fee from India.

IPI project originally estimated to cost seven billion dollars will be shared in terms of business and employment by the three countries. The chances of building the project have also brightened by the interest shown by the Russians in this giant enterprise. Russia, which is politically close to both India and Iran, is the world's largest producer of gas on which the Europeans are significantly dependent for their needs. Whatever the form of Russian participation which has not been spelt out yet, it would attract global financiers and gas companies.

For Pakistan, which is already using natural gas as a major source of energy, the fact that its reserves are now depleting makes it important to look for alternate sources. In this regard, the fact that no significant natural gas discovery has been made in the past couple of years points to the need to come up with some external solutions, one of which is the import of gas from Iran through the IPI pipeline. Pakistan will also earn a transit fee from India as part of this pipeline project. For India, the pipeline will bring energy to the industry rich states of Punjab, Gujarat and Rajasthan, where there is a growing demand for power and fuel. The IPI pipeline will also play the part of strengthening relations between India and Pakistan, as the safety of the pipeline will be in the interest of both the countries. One indication of how the project has helped improve relations between India and Pakistan is the manner in which the two countries have been bargaining for a better price with Iran. The joint strategy seems to have finally paid dividend.

While the progress on IPI pipeline is a welcome development, policymakers in Islamabad also need to give priority to meeting the countries' increasing energy requirements from indigenous sources. It will take three to five years for the IPI project to materialize if things move on smoothly. Besides, since Pakistan cannot remain heavily dependent on imports of oil whose prices are rising with the passage of time, it must speed up efforts for developing indigenous sources of gas, oil and coal. Sindh is known to have huge massive coal reserves in Thar area, which have remained unexploited for decades despite the interest shown by the Chinese. They can be invited back to help any time soon because of the close ties that Islamabad enjoys with Beijing. There is also evidence of the presence of much more oil and gas reserves in Balochistan than those of the Sui fields. These can be explored and harnessed provided peace and security are stored in the troubled province. The security concern of the foreign investors needs to be addressed primarily through political reconciliation and federalism. A peaceful environment is also required for laying Balochistan section of the IPI pipeline.

While all this is encouraging, there are some issues that remain unresolved. For one, Iran sees the pipeline as an important step in trying to go around US economic sanctions against it. The US not only blacklists Iranian companies but also those companies that do business in Iran as part of its strict economic sanctions regime meant to choke Iran into submission. While the US has publicly not opposed the pipeline project it has not openly supported it either despite the fact it helps India-Pakistan relations. American officials have only commented that Pakistan and India should do what they think is in their interest. At the same time, Washington has been offering India alternatives to meet its power requirements. The Bush administration has amended its own laws to offer nuclear technology to India. Now it is up to New Delhi to decide whether it will go ahead with the project and earn possible American ire. Only time will tell whether the IPI pipeline is actually built or not but as far as the practical situation demands, it is needed for all the countries concerned: India because its energy needs will keep on rising rapidly, far outstripping domestic supply; and for Pakistan because the fees will be lucrative and Iran because it will find a ready buyer for a major portion of its gas.

As far as problems that Pakistan may have on its end, they relate mainly to the law and order situation in Balochistan, through which the pipeline is expected to be laid. Earlier last week, the Chinese embassy advised Chinese companies against working in Balochistan owing to uncertain conditions there. These issues need to be addressed by the countries concerned before the project moves into its construction stage. Otherwise, despite all the good intentions, it will stay on the drawing broad forever.