Pakistan defiant on Iran gas
pipeline By Syed Fazl-e-Haider
KARACHI - Pakistan on Tuesday gave an unequivocal
assurance to Iran for early implementation
of the US$7.6 billion Iran-Pakistan (IP)
gas pipeline, a week after the toughest warning
issued yet by the United States to Islamabad to
shelve the project.
Islamabad and Tehran
vowed to intensify work on the IP project during a
meeting of the Pakistan-Iran bilateral talks,
which began in Islamabad this week, led by
visiting Iranian International Affairs
Vice President Ali Saeedlou
and Pakistan's Finance Minister Hafeez Sheikh.
President Asif Ali Zardari gave an
assurance on Tuesday that his country was
committed to the early implementation of the
project to meet the country's ever growing energy
needs during his meeting with the Ali Saeedlou.
Washington, which has intensified its efforts for
increased economic sanctions against Iran, has
serious reservations over the IP project.
Last week, a senior US diplomat reportedly
warned Islamabad that any attempt to go ahead with
the gas pipeline would be considered as
"furthering Iran's nuclear program". The US has
also offered to Pakistan alternative sources of
energy in the form of imports of liquefied natural
gas (LNG) at cheaper rates from Turkmenistan.
During his meeting with Ali Saeedlou,
Sheikh assured him of the country's commitment to
implementation of multi-billion-dollar gas and
electricity import projects.
"Pakistan is
fully committed to importing electricity and gas
from Iran, and we are working on a fast-track
basis to finalize these deals at the earliest,"
Dawn reported Hafeez Sheikh as saying.
The
two sides also discussed ways to enhance banking
cooperation and strike a currency swap arrangement
to promote bilateral trade. Under the IP deal, the
two countries signed in June 2010, Iran will
export 21.5 million cubic meters per day of
natural gas to Pakistan by the end of 2014.
The IP pipeline has reportedly reached
Iran's border, while Pakistan has completed the
survey for construction of pipeline on its side.
Last month, US President Barrack Obama
signed a US defense funding bill that includes new
sanctions on financial institutions dealing with
Iran's central bank. The law is expected to have
repercussions for Pakistan's plans to import gas
from Iran and could make it difficult for the
country to implement the IP pipeline project.
"Pakistan will be in for serious trouble
if it does not abandon the project," The Express
Tribune reported an American diplomat as saying.
"Any country, any bank or any financial
institution which tries to work with Iran will
certainly be slapped with sanctions."
The
US is dangling energy-deficient Pakistan both
stick and carrot in a move to persuade it to
abandon the IP gas pipeline. Washington has
offered the country to provide gas at a rate
approximately one-third of the price Iranian gas
would cost to the country.
American energy
companies have increased their gas supply in
recent years, causing natural gas prices to fall
5.7% on January 12 to their lowest level in over
two years. Iranian gas will cost $12 per million
British thermal units (mmbtu) while LNG would cost
$18 per mmbtu. The US could help Pakistan buy LNG
at $4.5 per mmbtu.
The IP project is seen
as an energy lifeline in Pakistan , which at
present suffers chronic gas shortages affecting
its industry and daily life. Petroleum Minister
Asim Hussain has warned that the whole energy
system of the country could collapse as the demand
and supply gap of gas has reached 2.2 billion
cubic feet (bcf). The gas in the system is 3.8 bcf
while the demand has shot up to 6 bcf.
The
IP project would help generate around 5,000
megawatts of electricity, which is equivalent to
present peak shortage of power in the country.
Local analysts believe that a land-based pipeline
would be one quarter the cost than any other
option, while the country could also earn about
$200 million to $500 million annually in transit
fees if the gas is exported to India or another
third country.
Pakistan has settled all
issues relating to IP gas pipeline project with
the Iranian authorities, including a gas sale and
purchase agreement (GSPA) and third-party
certification for uninterrupted supply of gas from
the source field to Pakistan for 30 years.
Under the IP pipeline construction plan, a
42-inch diameter pipeline would be installed to
connect Balochistan, Sindh and Punjab through
Khuzdar to Karachi, while the main pipeline would
continue toward Multan in Punjab with a joint
venture of major gas distributors Sui Northern Gas
Pipeline Ltd and Sui Southern Gas Co.
Last
month, US Stated Department spokesperson Victoria
Nuland expressed concern over the IP project and
said the law President Obama signed "forbids
dealing with central Iranian banks".
"We've made absolutely clear over many
months now our concern about this deal [the IP
agreement] and we will continue to talk to
Pakistan about it. Were it to go forward, how it
might be impacted - again, this is the kind of
conversation that we have to have with Pakistan
and that we're starting to have now," Dawn
reported Nuland as saying.
Islamabad
however renewed its commitment to go with the IP
project believing that US sanctions would not
affect the project.
The pipeline was
originally planned to extend from Pakistan to
India in 1993. Pakistan has also been taking up
the proposal of involving its closest ally, China,
in the IP venture in a bid to deepen ties with
Beijing as an alternative to increasingly fragile
relations with the United States.
Financing and security of the pipeline are
the two major issues confronting Pakistan for
implementation of the IP project. The country
plans to finalize an engineering and procurement
deal for the construction of the IP gas pipeline
project with China, which may also provide
financing. In 2010, a visiting Pakistani
delegation, led by Federal Water and Power
Minister Naveed Qamar visited Beijing to seek
investment, offering the contract for the IP gas
pipeline to China.
Finance Minister Sheikh
last month gave approval to the appointment of an
Industrial and Commercial Bank of China (ICBC)
led-consortium as financial advisor for the IP
project.
After India's withdrawal from IP
project in 2009, Beijing showed interest in
building an Iran-Pakistan-China (IPC) pipeline.
Syed Fazl-e-Haider
(http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author
of many books, including The Economic
Development of Balochistan (2004). He can be
contacted at sfazlehaider05@yahoo.com.
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