May 31 - June 6, 2010

Some analysts strongly believe that long-term and short-term solutions of Pakistan's chronic energy shortages lie in importing energy resources from Iran whether it is electricity import or gas import through a pipeline. They urge the government to look to Iran for tiding over the energy crisis instead of pinning hopes for a civil nuclear deal with the US.

Pakistan and Iran are poised to sign Guarantee Agreement (GA) which would make Gas Sales Purchase Agreement (GSPA) effective to kick off the work on the multi-billion dollar Iran-Pakistan (IP) gas pipeline, a project which is strongly being opposed by the United States. The two countries have already signed in March the operational agreement on IP gas pipeline. Tehran has also offered Islamabad a stopgap arrangement for provision of crude and furnace oil on deferred payment to meet the energy crisis till the IP pipeline project becomes operational.

A delegation of Pakistani experts will reportedly visit Iran in July to discuss all possible cooperation in areas of mutual benefit in the oil and gas sector. Analysts see good reasons behind a steady and speedy progress on IP project, as Pakistan, the US frontline ally in war against Islamist extremism, is presently reeling under worst power crisis and Iran is facing opposition on its nuclear program from international community that wants crippling economic sanctions against Tehran.

The gas shortage has worsened the power crises hampering industrial output in the south Asian country. Washington has already advised Islamabad to abandon IP pipeline project and seek other alternatives to meet the energy crisis.

The US opposes large investments in any Iranian project because of Iran's dispute with the international community over its nuclear program. Critics say that Washington's advice to Islamabad not to proceed with IP pipeline project is unrealistic, as the country cannot go back on the Iran deal because of its chronic gas shortage for its own proven gas reserves are dwindling.

Islamabad and Tehran are making arrangements to sign GA which would make GSPA effective to launch the work on the IP gas pipeline. The Ambassador of Iran to Pakistan, Mashaalah Shakeri recently called on the Federal Minister of Petroleum and Natural Resources, Naveed Qamar and discussed progress made recently on matters pertaining to bilateral cooperation in the energy sector, particularly regarding the import of oil and gas. The Iranian Ambassador made the offer for stopgap arrangement for Pakistan's energy needs till the IP pipeline project becomes operational. Petroleum Minister reportedly said the upcoming landmark pipeline project will further foster the existing brotherly bonds between the neighbors.

The country's demand for gas, which is the primary fuel helping run the economy, has surged to 4,700 mmcfd against actual supply of 3,600 mmcfd. Under the IP pipeline 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. Islamabad recently offered to provide India with security guarantees for the pipeline from the South Pars gas complex in Iran as an incentive to join the project.

Pakistan Electric Power Company (Pepco) requires a gas supply of 976mmcf to operate its entire thermal system, whereas it is receiving only 275mmcf. The Pepco's shortfall has risen to 4,900MW, forcing the company to resort to additional hours of load-shedding, which has severely affected not only business and industrial activity but also the domestic consumers.

Though United States is ready to go to its absolute limits to help energy-deficient Pakistan overcome its energy crisis, yet it has asked the country to reconsider its deal for building a multi-billion-dollar pipeline with Iran. Islamabad has refused to entertain the US dictate on IP gas pipeline after the Washington dampened the country's hopes for a civilian nuclear deal, similar to the one the US signed with India in 2008. The US wants Islamabad to address its immediate energy needs instead of pinning its hopes on a civilian nuclear deal.

Critics say that it would be folly to link IP project to Iran and the nuclear issue, as nothing stopped China and Russia from having lucrative power deals with Iran.

The country's natural gas reserves, which meet over 50 per cent of its energy requirement, have depleted rapidly in recent years with few hydrocarbon discoveries and decline in production from its largest Sui gas field in Balochistan.

This month, an Iranian delegation led by deputy economic minister for foreign affairs Seyed Amir Mansoor Baroghei held a meeting in Islamabad with Pakistani team headed by Minister for Water and Power Raja Pervaiz Ashraf and discussed ways of speeding up work on import of 1000MW electricity. The two sides agreed to expedite the import of 1000MW power project and decided to hold experts level meetings every two months.

Under the deal, a 700-km long transmission line will be constructed at an estimated cost of $600 million in five years. The work will start on the power import project and the tariff for the project would be negotiated after completion of the feasibility studies. Pakistan has completed its feasibility study for the project, while the Iranian company, Mushanir, is yet to complete its report. The Iran has however shown reluctance to provide electricity to Pakistan at cheaper rates, as the imported electricity will be for the national grid.

The country's southwestern coastal areas in Balochistan have largely been dependent on Iran for electricity requirements. Islamabad has been importing 39MW of electricity from Iran for Gwadar and border areas of Balochistan province. Presently, 35MW power is being imported from Iran through Mand interconnection on 132 KV, Tuftan 2MW on 20KV and Mashkehl 2MW on 20KV.

Iran has a key role in managing the power requirements of the country's emerging mega port city at Gwadar in Balochistan. The work on a 100MW import project for Gwadar is expected to be completed in June 2012. In February 2007, Islamabad signed an agreement with Iranian company Tavanir under which Pakistan will buy 100-megawatt power from Iran for Gwadar port. Under the deal, Iran will supply100-megawatt power to Gwadar port through a 170-km long 220 KV double circuit transmission line between 220 KV Polan substation at Iran side and 220 KV Gwadar substation. A 100-km long line will be constructed in Pakistan and remaining 70 km in Iran. The total cost of the project has been estimated at $86 million, out of which $26 million will be borne by M/s Tavanir, whereas the remaining $60 million by Pakistan.