Islamabad firm on Iranian
gas By Syed Fazl-e-Haider
KARACHI - The possible entry of Russia
into the proposed Iran-Pakistan (IP) project has
raised concerns in Washington, which is strongly
opposed to gas imports from Iran. Russia is ready
to finance and build not only the IP pipeline but
also the Turkmenistan-Afghanistan-Pakistan-India
(TAPI) gas pipeline under a
government-to-government deal reached between
Islamabad and Moscow last month. US Ambassador to
Pakistan Cameron Munter at the weekend reiterated
that Washington had its reservations on IP gas
pipeline project.
Washington is pushing
for tougher economic sanctions against Iran over
its nuclear plans. US Secretary of State Hillary
Clinton in February warned Islamabad of the
consequences for the country’ weak economy of
pursuing a pipeline from Iran as it could result in
US sanctions being
extended to Pakistan.
The decision with
respect to financing of IP and TAPI pipelines was
taken at a meeting of Pak-Russia Joint Working
Group on Energy. Financing has so far been the key
issue causing delays to completion of the IP
project. The Industrial and Commercial Bank of
China (ICBC) in March refused to sign a contract
for financial advisory services to raise funds for
the IP pipeline apparently due to US pressure.
Pakistan has agreed to award contracts
without bidding for both the IP and TAPI gas
pipelines to Russia, which has agreed to build
them at an accumulated cost of US$9.2 billion.
Pakistani Petroleum authorities have submitted
complete technical details of both projects to a
visiting Russian delegation led by Deputy Minister
for Energy YP Sentyurin, who last month called on
Asim Hussain, Adviser to the Prime Minister on
Petroleum and Natural Resources, in Islamabad.
The country will have to waive Public
Procurement Regulatory Authority (PPRA) rules if
it awards the contracts for laying pipelines in
its territory to Russian energy giant Gazprom.
China may yet also join the project after entry of
Russia in the IP gas pipeline, which could be
extended to western China via the Karakorum
highway The two countries are expected to sign a
memorandum of understanding (MoU) on gas import
projects in the next two to months.
"Pakistan's government will ask the
cabinet to waive public procurement rules for the
award of pipeline contracts to Russia," The
Express Tribune reported a participant of the
meeting of Pak-Russia Joint Working Group on
Energy as saying.
Islamabad has so far
been unable to arrange funds or find investors for
the project, while Iran has almost completed work
on its side of the border. Pakistan needs $1.5
billion to $1.8 billion to lay the pipeline on its
side of the border and for related connectivity
network.
Even so, after the withdrawal of
ICBC, the cash-strapped country has been left with
at least two financing options to build the IP
pipeline. First, the government could set up
separate accounts in Pakistani banks to collect a
gas development cess levied to build the pipeline.
Second, it may approach China, Russia or Iran for
government-to-government contracts to construction
of the pipeline in its territory from the Iranian
border. Iran has already offered Islamabad
financial assistance of up to $500 million for the
construction.
Islamabad has still holding
out hopes of building the IP pipeline because the
country's own proven gas reserves are rapidly
dwindling. Under the IP pipeline deal, Iran will
initially transfer 30 million cubic meters of gas
per day to Pakistan, eventually increasing to 60
million cubic meters per day. The pipeline will
start from the onshore gas processing facility at
Assaluyeh in Iran, to traverse a distance of
1,150km up to the Iran-Pakistan border, which will
be built and operated by Iran.
The US has
repeatedly asked Islamabad to abandon the IP
pipeline in favor of the TAPI pipeline, which
would supply gas at much lower rate than Islamabad
agreed with Tehran under the IP pipeline deal.
Turkmenistan on May 23 signed a landmark
gas sale and purchase agreement (GSPA) with India
and Pakistan for United States-backed TAPI gas
pipeline.
The proposed 1,680km TAPI
pipeline will start from the Daulatabad field in
Turkmenistan and end at the Fazilka settlement at
the border of India and Pakistan. The pipeline is
intended to transport more than 30 billion cubic
meters of gas annually from Turkmenistan to South
Asian countries via Afghanistan.
Local
analysts believe that the Taliban will be
stakeholders in the proposed TAPI project as its
fighters are capable of putting the whole scheme
of gas transportation through Afghanistan at risk.
Even if international developers like the Asia
Development Bank agree to invest in the project,
it will have to put aside a handsome amount as
extortion for the Taliban to complete the project.
And after completion, the gas seller and buyers
will probably have to pay the Taliban to ensure
smooth and uninterrupted gas supplies. It was
due to security concerns that Islamabad proposed
that Turkmenistan supply gas via Iran under a swap
arrangement by using the IP gas pipeline, instead
of laying a pipeline through Afghanistan. Under
this arrangement, an agreed volume of gas to be
imported by Pakistan from Turkmenistan would be
supplied to the northern provinces of Iran in
return for which Iran will supply an equivalent
gas volume through the IP pipeline to Pakistan.
Islamabad also offered a relatively less
turbulent alternative route for the TAPI pipeline.
Under this proposal, the TAPI pipeline would pass
near the Reko Diq copper mine project in Chaghi
district of Balochistan and onward to Gwadar port.
The alternative western route reduces the length
of the TAPI pipeline to 1,490 km compared with the
proposed 1,680 km Herat-Kandahar route.
Islamabad and Tehran have settled all the
key issues relating to the IP project, including
the GSPA and third-party certification for an
uninterrupted supply of gas from the source field
to Pakistan for 30 years. The US has offered
Islamabad assistance with TAPI route as an
alternative to the IP pipeline, but Islamabad is
reluctant to walk away from the IP project for an
insecure and uncertain TAPI project.
Local
analysts argue that the implementation of the TAPI
project will continue to depend upon peace in
war-ravaged Afghanistan. It is naive to expect
anyone to invest money in the project as long as
its route remains insecure due to the Taliban
insurgency. The analysts suggest that the country
should stick to the project without abandoning the
IP pipeline project under US pressure.
Syed Fazl-e-Haider (
www.syedfazlehaider.com ) is a development
analyst in Pakistan. He is the author of many
books, including The Economic Development of
Balochistan, published in May 2004. E-mail,
sfazlehaider05@yahoo.com
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