Pak-Iran gas pipeline project -
which would essentially change the face of the ongoing energy crisis in Pakistan
for the foreseeable future – seems to be ending in despair. Initially, the
project too included India. However, India dropped out along the way since the
negotiations commenced nearly two decades ago. Now, there are again reports
doing round in media, reporting Indian Minister of External Affairs Salman
Khurshid, that India might renter negotiations over the IP gas pipeline project.
In March 2010, Pakistan and Iran signed an agreement over the construction of
the gas pipeline project. The ambitious $7.6 billion project required the
parties to construct a 2,100 kilometres of pipeline for the supply of natural
gas to Pakistan.
So far, Iran has constructed 900 km of its part of the pipeline, while Pakistan
has yet to start a work at its end. As per the agreement, Iran would supply
Pakistan with 750 million cubic feet of natural gas per day for 25 years from
the end of 2014.
However, since its inception, the agreement has been mired in political
controversy, perpetually delaying the implementation of the project from our
end. Pakistan’s dependence on US compels one to question that ‘Why did we commit
to such an undertaking in the first place?’
It certainly wasn’t a surprise that US-Iran relations were anything but warm.
Iran’s Ahmadinejad was vocal as ever and there was no sign of a thaw.
We had elections then, political instability and lack of finances to pay for the
deal and above all the government had the knowledge about the cost of delay – a
penalty of one million dollars per day.As Pakistan is now obliged to construct
the remainder of the pipelines, it has to understand certain legal implications,
which it may face.
Firstly, US sanctions designed to limit the development of Iran’s petroleum
sector would apply to the pipeline’s construction. These would, in effect,
blacklist any company involved in the building. Secondly, at this stage, even if
construction goes through at full speed, we would still not meet the deadline of
pipeline construction mentioned in the agreement. One can imagine how much a
yearlong delay will cost us.
It is feared that US may hold back financial aid to Pakistan. Ties with US are
important for Pakistan given the fact that we, as a nation, rely heavily on its
aid and support. Therefore, with ongoing energy crisis and financial weakness,
it wouldn’t be wise to ruin ties with US over an agreement, which was doomed
since the beginning.
With the potential thaw between the US and Iran over the latter’s nuclear
program, we might try to position the agreement as a further confidence building
measure on behalf of the US. Of course, that is easier said than done.
Also, the US and EU sanctions are not merely to discourage the gas import from
Iran. US-Iran relations have not always been as fruitful as one would imagine.
The US has been placing sanctions on Iran since the Iranian Revolution in the
70s.
Amongst others, one particular set of sanctions is aimed at to preclude Iran
from trading or selling oil to other countries as a means of gaining investment
or financial inflow, which may help fund its nuclear development.
Therefore, Pakistan seems to be caught in the crossfire: dire need of energy on
one hand and the US wrath on the other if Pakistan goes with the IP project.
US-Iran relations remain unstable towards the end of 2013. A nuclear deal was
struck between the two countries in an attempt to reach to a solution whereby
Iran would curtail its nuclear activities in line with US demands, whilst
producing nuclear energy only for peaceful purposes. The deal would also
restrict Iran’s uranium enrichment programme and make the country ensure that
any such activity would comply with the non-proliferation treaty.
The timeline for the US-Iran nuclear deal is tentatively of six months; however,
whether or not Iran will actually take steps in line with the terms set out in
the deal is a completely different argument.
A reasonable moderate way for the present government of Pakistan may be to wait
how the US-Iran deal will turn out. Being overactive at this point may prove
counterproductive, thereby undermining the entire negotiation process. Pakistan
would be wise in being diplomatic till such point that Iran’s intentions
vis-à-vis the nuclear deal is clear.
After all, Pakistan cannot completely refute its bilateral relations with Iran.
Given Pakistan’s geographical location, and sensitivity of ties with neighboring
countries such as Afghanistan, it would be best if a productive middle course is
sought.
Yes, we need energy on a priority basis. How we plan on getting that energy
without activating a time bomb against us from Iran and the US is what the
relevant stakeholders at the top needs to consider. Mere rhetoric does not
necessarily get the job done. Words are spoken. The game changer is when words
are put into action at the right place and the right time.
Pak-Iran gas pipeline: The US factor
Iran’s interim nuclear deal with United States and its allies last year brought
a ray of hope for Pakistan to go ahead with Pak-Iran gas pipeline. But this hope
was dashed when the US refused to exempt the Iran-Pakistan (IP) gas pipeline
from sanctions against Iran as most of the sanctions targeting Iran’s energy
sector remain in place under terms of the interim nuclear deal.
US repeatedly called on Pakistan to give up the Pak-Iran gas pipeline project
but so far the latter resisted the US pressure and expects that the US will
exempt it from Iran’s sanctions.
The discussions for the Pak-Iran gas pipeline project started in 1994 between
Islamabad and Tehran. India was included in the proposed pipeline project on the
suggestion of Iran and thus it became the Iran-Pakistan-India (IPI) pipeline.
But India withdrew from the project under US pressure in 2008. Pakistan alone
entered into an agreement with Iran to purchase gas on May 24, 2009. As per the
deal, both sides agreed to lay pipelines up to their respective borders by 2014.
If any party was unable to do so, it would have to pay a huge amount ($3m per
day) in compensation to other as per agreement. Iran has already completed the
construction of pipeline in its territory but Pakistan has yet to complete it on
its own side.
Though the main hurdle in the completion of the IP project is US opposition but
there are also some other obstacles particularly lack of finance to implement
the project. But these obstacles are also directly or indirectly related to the
US opposition.
That is why both domestic and international investors are reluctant to get
involved in the project.
Major foreign energy companies, such as Malaysia’s PETRONAS, Royal Dutch Shell,
Australia’s BHP, and France’s Total had expressed interest in a consortium to
fund the project but these firms gradually back off from the project due to US
pressure. In the same way, the Industrial and Commercial Bank of China Ltd (ICBC)
and Gazprom of Russia, the largest extractor of natural gas in the world, too
pulled out of this pipeline project.
But it is not a matter of surprise because Pakistan’s own Oil and Gas
Development Corporation and the National Bank of Pakistan reportedly withdrew
from the project because of the fear of US sanctions.
The US has recently refused to supply two Gas Compressors needed by Pakistan for
IP pipeline project and also warned Sui Southern Gas Company and Sui Northern
Gas Company not to allow any facility of use of Gas Compressors purchased from
US for their Gas distribution network. If they are found indulging in such
practice this would attract immediate sanctions against these two companies that
will paralyze gas distribution throughout Pakistan.
The question arises why the United States is opposing the Pak-Iran gas pipeline?
The main reason behind the US opposition to the IP which is being much
highlighted in the media is US views that the revenue generated from the project
would be used by the Iran to further accelerate its nuclear program. But there
are also some other reasons behind the US opposition to the project. These are:
US have been backing the Turkmenistan-Afghanistan-Pakistan and India (TAPI) gas
pipeline (which would transport natural gas from the Turkmenistan directly to
India via Afghanistan and Pakistan) as an alternative to the IP gas pipeline
project.
But the future of this project is highly uncertain because of the continuous
conflict in Afghanistan. In the past, United States offered assistance to
Pakistan for a Liquefied Natural Gas terminal along with providing the
electricity from Tajikistan through Wakhan Corridor in return for abandoning
Iran-Pakistan gas pipeline project but Pakistan has turned down the proposal. In
fact, Pak-Iran gas pipeline is cheaper than TAPI and the path through which it
has to pass is comparatively shorter and secure. Also, there is consensus within
Pakistan even between the two big political parties i.e. PPP and PML-N to
materialize this project.
As a result of the completion of this pipeline project, Iran would be able to
check the growing US influence in Afghanistan and Pakistan. Besides, by
exploiting its vast gas reserves, Iran can improve its economy and exert
political leverage, hence lessening the effect of sanctions and defeating the
purpose of the US policies towards Iran.
The US policy towards IP is discriminatory in nature. On one hand US has signed
civil nuclear deal with India and on the other hand it denied the same facility
to Pakistan despite the huge sacrifices made by the latter in the ongoing war on
terror. Furthermore, If Iran could export gas to Turkey and Armenia then why
objections are being made on Iran regarding exporting gas to Pakistan?
Pakistan’s role is very important to help US in withdraw from Afghanistan. This
fact has also been acknowledged by the US.
Therefore, US have to realize the geopolitical importance of Pakistan and should
help in constructing the IP project rather than opposing it. The project has
great importance for Pakistan both in political and economic terms. It would not
only be helpful to overcome its crippling energy crisis but would also further
strengthen the brotherly and neighborly relations with Iran.
Recently, according to media source, Iran has showed conditional willingness to
extend the deadline and waive off the penalty clause already set for the
completion of the gas project. This is good news for Pakistan.