Iran gas pipe line

IranPakistan Peace Pipeline 1

Iran-Pakistan Peace Pipeline

Editor Dr Noor ul Haq

Assistant Editor

Muhammad Nawaz Khan

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CONTENTS Preface v

1. Pakistan-Iran Gas Pipeline: History and Perspectives 1 2. Pakistan, Iran Finally Sign Gas Pipeline Accord 5 3. Trade and Transit of Goods Get Special Attention: Pakistan, Iran Sign Peace Pipeline Declaration 6 4. Peace Pipeline at Last 8 5. India has No Plan to Shelve IPI Gas Pipeline 9 6. IPI Becomes Peace Pipeline 10 7. Pipeline or Pipe Dream? 12 8. Gazprom and IPI 15 9. Feasibility of Iran-Pakistan Gas Pipeline Project: Contract

Awarded to German Firm 16 10. Will China Join the Iran-Pakistan-India Pipeline? 18 11. Iran-Pakistan Pipeline Project to Cost $3-4 Bn 22 12. Iran and Pakistan Sign Historic Pipeline Deal 23 13. Pipeline Agreement 24 14. Iran-Pakistan Gas Pipeline 25 15. IPI: The Baloch Perspective 27 16. Pipeline Politics 28 17. Unrealistic Advice 29 18. U.S. Objection to Pak-Iran Gas Pipeline 30 19. Frivolous U.S. Objection to Gas Deal with Iran 31 20. Pipeline Politics 32 21. U.S. Diktat on Iran Pipeline Not to be Entertained 35 22. Iran to Complete Peace Pipeline 36 23. Pakistan, Iran Sign Major Gas Pipeline Pact 37 24. Pak-Iran Gas Pipeline 38 25. Iran to Approve Pakistan Gas Pipeline Deal this Week 40 26. Iran-Pakistan Gas Pipeline Project Inked 41 27. Iran Begins Work on Gas Pipeline Today 42 28. Pakistan Seals Pipeline Deal with Iran 44 29. Iran-Pakistan Gas Deal Boosts Iran 46 30. U.S. Says New Sanctions on Iran could Impact Pakistan 48


31. Pakistan Foreign Minister Vows to Implement Iran Gas Pipeline Project 49

32. Confusion Reigns over U.S. Stance on Gas Pipeline 50 33. U.S. Blows Hot, Blows Cold over Pak-Iran Gas Pipeline 52 34. Pakistan Not Bound by U.S. Sanctions Against Iran: Gilani 53 35. Iran-Pakistan Pipeline 54 36. Yielding to Pressure 56 37. Pakistan and Iran Reiterate Commitment to Execute

Iran-Pakistan Power Projects 57

38. UK Says Iran Gas Pipeline Pakistans Internal Matter 58 39. Iran-Pakistan Gas Pipeline to Strengthen Relations 59 40. Pipeline to Transform Pakistan into Asian Tiger 60 41. Pakistan-Iran Pipeline 61 42. Pakistan Portion of Iran Gas Pipeline to Cost $1.2 Bn 62 43. Pak-Iran Pipeline: Pakistan to Construct 780-km Pipeline 64 44. Pakistan Plans to Mobilise Domestic Funding 65 45. Tehran Pressing India on Land Gas Pipeline 66 46. Pakistan Going Ahead with Iran Gas Line 67 47. India, Iran to Hold Gas Pipeline Talks 68 48. The Iran-Pakistan Gas Pipeline 70 49. Iran-Pakistan Pipeline: One-Third Completed 72 50. Pak-Iran Gas Pipeline Agreement 73 51. Gas Pipeline Project: To Do or Not To Do 73 52. Iran-Pakistan Gas Line: Pakistan May Raise $ 1.6 Bn Itself 77 IPRI Publications 78

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PREFACE Iran-Pakistan Gas Pipeline between energy deficient Pakistan and energy rich Iran is a feasible and doable project, but it has been lingering since 1995 when an MOU was signed to construct the pipeline between Pakistan and Iran. The project was designed to deliver natural gas from Iran to Pakistan and India. The 2775 km (approximately 1100 km in Iran, 1000 km in Pakistan and 600 km in India) long pipeline was proposed to emanate from South Pars gas field and pass through Bandar-Abbas, Khuzdar, Sui to Multan and then to Delhi, at an estimated cost of US $ 7.5 billion. India had proposed an alternative route along the coast. The project was termed as the peace pipeline as it was hoped that it would help in obliterating old rivalries and pipeline diplomacy would bring peace to the region1.

The Iran-Pakistan Working Group was formed in 2003 to move the project forward. Islamabad had told Tehran that, in case India was not willing to join, Iran-Pakistan gas pipeline should be pursued as an independent project; but, in 2005, an MOU was signed to include India in the project. In 2007, India and Pakistan provisionally agreed to pay Iran US $ 4.93 per million British thermal units, but India subsequently withdrew from the deal ostensibly over concerns about the price and security.

Pakistan is believed to have informed the U.S. that it was not possible for it to abandon the project because of its pressing energy needs. In spite of U.S. opposition, Pakistan and Iran signed an agreement for the pipeline on March 16, 2010 at Ankara; and in Tehran, the Iranian President Mahmoud Ahmadinejad and Pakistani President Asif Ali Zardari signed the Inter Governmental Framework Declaration on May 24, 2009. After the signing ceremony of the sovereign guarantee agreement, Pakistans Minister for Petroleum and Natural Resources said that the Gas Sale and Purchase Agreement between Pakistan and Iran was for the import of 750 million cubic feet daily of natural gas with a provision to increase it to one billion cubic feet per day. Hopefully, the gas will be available to Pakistan by 2014.

1 Prime Minister of Pakistan, Dawn (Karachi), February 23, 2005.


Though India has lately shown interest in the pipeline again, the real reason why it backed out of the three-nation deal was its nuclear deal with the U.S. signed in 2008. It is also alleged that there were deliberate attempts by India to sabotage this vital venture, as New Delhi used it as a bargaining chip with the United States during discussions on nuclear accord to gain more concessions.2 Earlier, in 2008, Iran had also expressed its interest to provide gas to China, whose response is yet to be ascertained.

This issue of the IPRI Factfile provides a few articles and comments appearing in the media from May 24, 2009 till July 27, 2010. July 31, 2010 Dr Noor ul Haq

2 Editorial, Pakistan Observer (Islamabad), July 18, 2010.


PAKISTAN-IRAN GAS PIPELINE The IranPakistanIndia gas pipeline, also known as the IPI pipeline or the Peace pipeline, is a proposed pipeline to deliver natural gas from Iran to Pakistan and India. Country: Iran, Pakistan, India From: Asalouyeh (South Pars gas field) Passes through: Bandar-Abbas, Iranshahr, Khuzdar, Sui, Multan Type: Natural gas Partners: National Iranian Oil Company, Sui Northern Gas Pipeline Limited, Sui Southern Gas Company Limited Expected: Mid 2015 Length: 2,775 kilometers (1,724 mi), From Iran side 1100 Km (730 iles), Pakistan 1000 Km and India 600 Km Discharge: Initially 22 billion cubic meter per year (21.5 million cubic meters per day) (750 million cubic ft), Will be raised upto 55 billion cubic meter per year Diameter: 48 inches (1,219 mm) Estimated Cost: US $ 7.5 billion In Khuzdar a branch would spur off to Karachi. From Multan the pipeline may be expanded to Delhi Alternative Rout proposed by India: Iran to the maritime boundary between India and Pakistan off Kutch. From there one branch to run to Pakistan while other branch to run to Kutch. History

The idea was conceived by a young civil engineer in mid 1950s, when an article of his was published by the Military College of Engineering, Risalpur. His name was Malik Aftab Ahmed Khan. He retired from the Pakistan Army as a Lt. Col. in 1976 and died in 1999, at the age of 70 years. The article "Persian Pipeline" also mentioned the method for its protection along the hostile territory by establishing mini battalion-size cantonments along its proposed route through Baluchistan/Sind. Serving multiple functions, to control dacoits and terrorists etc and to provide protection to the pipeline. The project was conceptualized in 1989 by Rajendra K. Pachauri in partnership with Ali Shams Ardekani, former Deputy Foreign Minister of Iran. Dr Pachauri proposed the plan to both Iranian and Indian governments in 1990. The government of Iran

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responded positively to the proposal. At the annual conference of the International Association of Energy Economics, 1990, Dr Ardekani backed Dr Pachauri's proposal.

Agreements/MOUs

1. Discussions between the governments of Iran and Pakistan started in 1994. A preliminary agreement was signed in 1995 between Pakistan and Iran. This agreement foresaw construction of a pipeline from South Pars gas field to Karachi in Pakistan.

(The South Pars/North Dome field is a natural gas condensate field located in the Persian Gulf. It is the world's largest gas field, shared between Iran and Qatar. According to the International Energy Agency, the field holds an estimated 50.97 trillion cubic meters (1800 trillion cubic feet) of in-situ gas and some 50 billion barrels of condensates. This gas field covers an area of 9700 square kilometers, of which 3700 square kilometers (South Pars) is in Iranian territorial waters and 6000 square kilometers (North Dome) is in Qatari territorial waters) 2. In February 1999, a preliminary agreement between Iran and India was signed to extend the pipeline from Pakistan into India. 3. The project was revived and bilateral Iran-Pakistan Joint Working Group (JWG) was constituted and the first meeting was held on December 29-30, 2003 in Islamabad. An MOU was signed on July 7, 2005 to include India in the Project. 4. A Term Sheet was signed between Iran and Pakistan on November 16, 2005. The Term Sheet provided for gas supply of 2.1 billion cubic feet per day (Bcfd) for a period of 30 years. 5. In February 2007, India and Pakistan agreed to pay Iran US$4.93 per million British thermal units (US$4.67/GJ) but some details relating to price adjustment remained open to further negotiation. 6. Initial gas price formula agreed in January 2007. The Economic Coordination Committee of the Cabinet (ECC) in April 2007 approved gas price formula subject to the condition that in case Iran offers a better price to India, the same would be applicable to Pakistan. 7. Pakistan held a number of separate bilateral meetings with Iran as well as with India and project issues like gas volumes, project structure, governing laws, pipeline route, principles of transport tariff and transit fee were deliberated upon in detail.


8. In April 2008 Iran expressed interest in the People's Republic of China's participation in the project. 9. The Federal Cabinet in its meeting dated 8th April 2009 cleared the project to enter into GSPA with Iran. Consequently, Presidents of both the countries signed the Inter Governmental Framework Declaration on 24th May 2009. On the occasion, ISGS from Pakistan and NIOC from Iran, initialed the Gas Sales Purchase Agreement (GSPA). 10. In 2009, India withdrew from the project over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008. However, in March 2010 India called on Pakistan and Iran for trilateral talks to hold in May 2010 in Tehran. 11. In January 2010, the United States asked Pakistan to abandon the pipeline project. If canceling the project, Pakistan would receive assistance from the United States for construction of a liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan's Wakhan Corridor. 12. However, on 16 March 2010 in Ankara, Iran and Pakistan signed an agreement on the pipeline. Perspectives

1. The Project is planned to be financed on Public Private Partnership basis. 2. However, in view of the strategic nature of the project the Govt of Pakistan (GOP) will hold controlling share in the pipeline company through investment by Public Sector Entities (PSEs). 3. The project will support around 4,000 MW power generation capacity, which will help in overcoming the power shortage crisis. 4. The construction of pipeline will also create job opportunities in backward areas of Balochistan and Sindh. 5. Iran clearly connects the main perspectives with further building of the pipeline into other countries; Pakistan as well interested in additional income due to gas transit. India left the negotiations in 2008 but its economy grows rapidly, and energy consumption and deficit are growing as well. It is quite probable that one more branch of the pipeline will go to India. 6. Another frequently discussed possible variant is continuing the pipeline to China.

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7. Teheran invited Russian gas monopolist Gazprom to build a pipeline into Pakistan and Gazprom claimed its readiness to join the project and function as operator of the pipeline and contractor of the building. 8. Iran has also proposed that an electricity transmission network be built next to the pipeline, connecting electricity grid of Iran with that of Pakistan, India and China. Iran has offered to sell electricity to Pakistan, India and China at a subsidized rate. Iran Gas Reserves

1. Iran has an estimated 982 trillion cubic feet (TCF) or 27.8 trillion cubic meters (TCM) of proven natural gas reserves which are the world's second largest after Russia. Around 62 % of Iranian natural gas reserves are located in non-associated fields, and have not been fully developed. Major natural gas fields include: South and North Pars, Tabnak, and Kangan. 2. The most significant gas field in Iran is the offshore South Pars field, which is estimated to have 450 TCF or 14 TCM proven natural gas reserves, around 40 % of Irans total proven natural gas reserves and 8% of the worlds reserves. South Pars is nominated gas supply source for the IPI Project. 3. According to recent studies Iranian gas production should reach 280bcm by 2018, up from 112bcm in 2007, while consumption is expected to rise from 119bcm to 208bcm by the end of the forecast period, providing exports potential of 72bcm. Iran Gas Exports

1. Iran exports about 6-9 BCMA to Turkey via a 2,500 KM pipeline connecting the two countries. The agreement was signed in 1996 2. Iran also exports 1 BCMA gas to Armenia, and under the arrangement imports electricity. Iran and Armenia are in negotiations to gradually increase the volume to 2.3 BCMA.

Falaksher, http://studentsfuture-sher.blogspot.com/2010/07/pakistan-iran-gas-

pipeline.html (accessed May 24, 2010).


PAKISTAN, IRAN FINALLY SIGN GAS PIPELINE ACCORD After fourteen years of delayed negotiations over the IranPakistanIndia (IPI) gas pipeline project, Pakistan and Iran have finally signed the initial agreement in Tehran on Sunday [May 24, 2009].

The project, termed as the peace pipeline by officials from both countries, has been signed by President Zardari and President Mahmoud Ahmadinejad of Iran on the sidelines of the tripartite summit on Afghanistan security in Tehran.

However, talking to the Iranian official news agency IRNA the Irans Oil Ministry had said that negotiations on the Peace Pipeline project were still underway between Iranian and the Pakistani delegations, which would allow Irans gas to be exported to Pakistan.

The Pakistani delegation negotiating the project was led by the advisor to the prime Minister on Petroleum Dr Asim Hussain, who is accompanied by petroleum ministry officials and a technical team headed the managing director Inter State gas Systems (ISGC), Syed Hasan Nawab.

The ISGS is a semi-autonomous body looking after Pakistani interests in the international gas pipeline projects to import gas from Iran and Turkmenistan.

The federal cabinet had earlier agreed to allow the import of one billion cubic feet of gas at the rate of 80 per cent of the price of crude oil.

The next phase was to sign the gas sales purchase agreement with Iran, member of the delegation told Dawn.

Official sources said that soon after signing of the gas sales purchase agreement work would start at the designing of the project.

Pakistan has already appointed a German designer is ILF for the pipeline, petroleum ministry sources said, adding that the pipeline would enter Pakistan from its border near Gwader area to Nawabshah, which is the hub of gas pipelines in the country.

The IPI project was conceived in 1995 and after almost 13 years India finally decided to quit the project in 2008 despite a severe energy crises in that country. Pakistan is also facing severe criticism from the US over any kind of economic deal with Iran.

Official sources say that the sudden change of stance from the Pakistani government and the pace of developments at the project suggest that the strong US opposition has softened.

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According to the initial design of the project, the 2,700 kilometre-long pipeline would cover around 1,100 kilometres in Iran, 1000 kilometres in Pakistan and around 600 kilometres in India, and the size of the pipeline was estimated to be 56 inches in diameter.

We are still hoping that India would join the project but in other case the size of the pipeline would be reduced to 42 inches as initially estimated, an official of ISGS said.

However sources in the ISGS said designing and finalising the reports of financial consultants would take up to one year and the work over the project can be started by mid of 2010. The estimated project completion time is between five years.

Sources in the petroleum ministry said that despite cabinet approval Pakistan would negotiate to get the gas prices lowered.

The official report prepared by the petroleum ministry and the ISGS said that the gas would be purchased for power generation and it would enable Pakistan to generate 5,000 megawatts (MW) power.

The petroleum ministry also said that power generation and usage of imported Iranian gas by heavy industries would result in annual saving of up to $1 billion in furnace oil imports, if the crude oil prices are at $50 per barrel.

The reports and calculations forwarded by the ISGS further said that there would be an annual saving of $735 million, compared to if the equivalent quantity of LNG was imported for power generation, and the saving will increase in line with the hike in global crude oil price.

Dawn (Islamabad), May 24, 2009, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/news/business/09-iran-pakistan-sign-gas-pipeline-deal-media-szh--07

TRADE AND TRANSIT OF GOODS GET SPECIAL ATTENTION : PAKISTAN, IRAN SIGN PEACE PIPELINE DECLARATION

President Asif Ali Zardari and his Iranian counterpart Mahmoud Ahmadinejad on Sunday signed an inter-governmental framework declaration to support within the framework of their respective laws and regulations, the gas deal signed by the oil ministries of the respective countries.

Earlier, the Gas Sale Purchase Agreement was signed by the managing directors of the National Iranian Oil Company and Pakistans


Inter-state Gas System for the export of Iranian natural gas to Pakistan at the border of Iran-Pakistan for domestic consumption in Pakistan.

The deal known as a peace pipeline was signed on the sidelines of the current tripartite summit of Pakistan, Afghanistan and Iran on elimination of terrorism, drugs and human trafficking also on Sunday.

Some 1,100 of the 2,100 kilometre pipeline would be laid in Irans territory and 1,000 kilometres in Pakistan.

Foreign Office Spokesman Abdul Basit said Iran would supply 23 million cubic metre gas per day for 25 years under the agreement, adding the agreement could be extended for an additional five years.

He said it was agreement between Pakistan and Iran, however, the agreement had provisions to include India if it wanted to join the project.

Adviser to the Prime Minister on Petroleum Asim Hussain told APP that Pakistan and Iran would sign the formal agreement for the multi-billion dollar project in a third country within the next 15 days.

Special issues: The three countries agreed to establish a mechanism for holding regular and periodical trilateral consultations on special issues, according to a joint communiqu released at the conclusion of the one-day trilateral summit.

The three countries reaffirmed their deep commitment to make every effort to eliminate extremism, militancy and terrorism from the region.

The three countries will also collaborate closely in establishing and developing energy corridors in the region, including oil and gas pipelines and electricity networks.

Trilateral economic, industrial, planning commission and chambers of commerce will also be established.

Trade: The three sides emphasised further effective measures for implementation of bilateral, trilateral and multilateral agreements on trade and transit of goods between and through their countries.

Zardari: President Asif Ali Zardari on Sunday stressed for joint efforts and increased cooperation among Pakistan, Afghanistan and Iran for combating the challenges of terrorism and militancy, which were badly hurting peace, security and development in the region.

We have to get together to tackle these challenges. It is not just the matter of our survival, but for the betterment and safety of our future generations, Zardari said.

Daily Times (Lahore), May 25, 2009, http://www.dailytimes.com.pk/default.asp?page=2009\05\25\story_25-5-

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PEACE PIPELINE AT LAST

There is little good news these days, but perhaps we should not despair. Iran and Pakistan have signed a deal to construct a gas pipeline that had been on the cards since 1995, notwithstanding the numerous turns and twists in negotiations. The gas sales agreement should also be signed shortly. We can then hope for work on the project to begin. This is a major breakthrough for Pakistan which will gain tremendously in the energy sector. When completed the 2100-kilometre pipeline will carry 750 million cubic feet of gas per day from Irans South Pars fields to Nawabshah in Sindh. This gas will be used only for energy generation and help produce 5000MW of electricity for this power-starved country. The price agreed upon for the moment i.e. 80 percent of the oil price, may not be as low as initially bargained for. But in the absence of alternatives this appears to be the most feasible offer. With oil prices falling as they are these days, Pakistan should benefit.

There are, however, two aspects of this project that must be kept in mind. One is directly linked to Pakistans security concerns in Balochistan. Fears have been expressed that the turmoil in Balochistan will threaten the security of the pipeline since a great length of the 1,000 kilometres inside Pakistan passes through that province which borders Iran. Islamabad could convert this factor to its advantage if it can ensure that in the construction of the pipeline indigenous labour is hired and the gains of the economic activity inevitably generated by projects of such magnitude are focused on Balochistan for the benefit of its poverty-stricken people. The peace pipeline will begin functioning in another five years. This period should be used by Islamabad to address the Balochistan problem in earnest to find a just solution that redresses the grievances of the provinces citizens.

The international implications of the Iran-Pakistan pipeline accord also have great significance. At one stage India had expressed serious interest in the project as it also stood to benefit from it. Had India not dropped out as it did last year the pipeline would have emerged as a powerful focal point in a region that is emerging as an important site on the world energy map. The two signatories have kept the door open for New Delhi that can still join the arrangement at some point. Plans to reduce the circumference of the pipeline should keep the prospects of Indias entry in view. Very importantly, Pakistan has displayed a measure of independence vis--vis Washington which has been a persistent


opponent of the pipeline deal. With changes in the global equations in the offing and there being a possibility of a US-Iran dialogue, one can only say that Pakistan stands vindicated.

Editorial, Dawn (Islamabad), May 26, 2009, http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-

newspaper/editorial/peace-pipeline-at-last-659

INDIA HAS NO PLAN TO SHELVE IPI GAS PIPELINE

In discussions with Iran, Pakistan The Indian government, said a senior official, wishes to take talks

forward on the $7 billion Iran-Pakistan-India gas pipeline project. This was a day after Iran and Pakistan were reported to have signed

on the pipeline agreement. India is in discussion with Iran (on the gas price revision clause) and

with Pakistan (on transport cost issues) to resolve the issues impeding a deal.

We are very much interested in the pipeline, said a senior official from the ministry of petroleum and natural gas.

India has been part of the 2,775-km pipeline project for over a decade, but did not participate in a critical meeting held on the issue in October last year, where officials from Iran and Pakistan discussed the project cost and new gas pricing formulae.

We are always looking for sources of gas to ensure energy security. However, while we would want gas security, we do want it at a reasonable pricing, the official added.

India needs to resolve its issues with Pakistan including security of the pipeline before moving on to the issues with Iran.

Before discussing other issues, resolving the issue of transit fee and transportation cost is important, an official said.

Iran, Pakistan and India had earlier mutually agreed to a price of $4.93 per million British thermal unit (mBtu) for the gas from the South Pars field in Iran.

Analysts say with India having to pay a transportation charge to Pakistan, the price could go up to a high of $8-10 per mBtu.

In the past, there have been reports that India could opt out of the project, with Iran and Pakistan bringing in China as a possible third partner. However, the ministry official denied any such proposal.

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Considering the route, it is impossible that China could be a part of this project, the official added.

India is likely to receive an estimated 30 million cubic metres of natural gas per day (mcmd) from Iran, if the agreement comes through.

Reuters reported last week that officials from Teheran and Islamabad had signed an agreement on exports of Iranian natural gas. Iran would deliver an annual 8 billion cubic meters of gas to Pakistan under the agreement.

Iran has the worlds second-largest gas reserves after Russia. But sanctions, politics and construction delays have slowed its development, and analysts say Iran is unlikely to become a major exporter for a decade. The construction of the Pakistani part of the pipeline would take three to four years.

Under the original plans, the pipeline would initially carry 60 million cubic metres of gas daily to Pakistan and India, half for each country. The pipelines capacity would later rise to 150 million cu metres.

Business Standard (India), May 26, 2009, http://www.business-standard.com/india/news/india-has-no-plan-to-shelve-ipi-

gas-pipeline/359217/

IPI BECOMES PEACE PIPELINE

The big dividend from the tripartite Iran-Afghanistan-Pakistan meeting is the Iran-Pakistan gas pipeline deal announced on Sunday. President Asif Ali Zardari and President Mahmoud Ahmadinejad signed a framework agreement in Tehran which will lead to a formal agreement on the building of a pipeline in a fortnight. The pipeline project has taken 14 years to materialise because of the political vicissitudes of the region and, one has to admit, inexperience on the part of the parties concerned of the culture of pipelines.

The project, earlier dubbed Iran-Pakistan-India pipeline, was conceived in 1995. Last year, as a result of India signing the US-India nuclear treaty, based on a US Congress law which suggests that India follow the American line on Iran, India quit the pipeline deal. Irans own relations with India went through some ups and downs because of the formers frequent change of mind on done deals. Pakistan also faltered on oil-pegged price-setting with Iran in a sellers market when oil was selling at nearly $150 per barrel. Thankfully, all that now seems to have been sorted out.


India is out for the time being. But Prime Minister Manmohan Singh, the economist, might realise in his new tenure that nuclear technology has been trumped by Indias colossal demand for energy. Today, when the price of oil is $60 a barrel, the deal Pakistan has clinched looks greatly attractive. Pegged to 80 percent of the price of oil, the gas Pakistan will get will save it a billion dollars a year. But since these savings will be in the sector of oil and furnace oil imports the advantage will be durable. Also, the 2,000 km pipeline, shared half and half by the two countries, will not go through the troubled area of Khuzdar in Balochistan but will enter Pakistan from its border near Gwadar and go to Nawabshah in Sindh, which is the hub of gas pipelines in Pakistan.

Pakistan will receive one billion cubic feet of gas from this pipeline but will expect India to rejoin the project. But India will have to decide pretty soon what it wants as the project will start on the ground in 2010. If India doesnt, then the pipeline will become forever a two-state pipeline because of its diametrical size. Pakistan will use this gas for industrial and power generation (5,000MW) purposes. It seems that the dream of Pakistan becoming a transit country for gas supply to India and China is on hold for some time. But the destiny of Pakistan as a transit hub will not be negated by war forever.

The changing of the name of the pipeline to peace pipeline is not without significance. The signatories, Iran and Pakistan, cannot avoid the innuendo that peace has prevailed after a period of non-peace between the two. And the big development since the beginning of 2009, when the project was stalled because of pricing difficulties, has been Pakistans final decision to take on the Taliban inside Pakistan. Only a few months ago, hostile commentators in Pakistan were noting the presence of Irans foreign minister in Mazar-e-Sharif as a plot against Pakistan, but the truth is that Iran was greatly threatened by the possibility of the return of the Taliban to power in Afghanistan and said so when its officials recommended that Pakistan stop the Taliban onslaught in Pakistan.

From the low point when Iranian diplomats were killed in Mazar-e-Sharif in 1998, Iran-Pakistan relations have come out of their dark patch this year. The transit route war which began with India helping Iran build the Chabahar port right next to Gwadar is hopefully at an end; and after Pakistans opting for its true role in South Asia, the gas pipeline will serve to integrate the regional economies. Pakistans geopolitical, significance will be demonstrated to the world after the pipeline is

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completed and Iranian gas from gas fields near the Gulf is used by industries right next to the Indian border. After that, Pakistan will not be able to avoid prosperity, which is the birthright of the people of Pakistan, by choosing conflict instead of cooperation.

Editorial, Daily Times (Lahore), May 26, 2009, http://www.dailytimes.com.pk/default.asp?page=2009\05\26\story_26-5-

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PIPELINE OR PIPE DREAM?

If all or most of the Iranian gas is used for the power sector, as stated by the government, then our energy mix will remain lopsidedly dependent on imported fuel.

After more than a decade of negotiations and many ups and downs, Iran and Pakistan signed the framework on the Iran-Pakistan peace pipeline during President Asif Ali Zardaris visit to Tehran, pushing the much-delayed project a notch forward. The gas pipeline project makes economic sense: Iran has surplus gas to sell and Pakistan needs gas.

But situations, particularly in the extended Southwest Asian region, dont always follow economic logic; instead, they are determined by politics, strategic interests, rivalries and conflicting views, particularly about Afghanistan.

Since the pipeline project presently concerns Iran and Pakistan, it would be better to comment on the nature of Pak-Iran ties and whether or not moving forward with pipeline will also move forward the somewhat troubled relationship between the two states. The answer lies in how we read the nature of this relationship and how it is likely to develop in the context of the larger context of power between a variety of players Iran, Afghanistan, Pakistan, India and the United States.

The smiles and tight embraces of diplomats and political leaders of Iran and Pakistan dont tell much about the hidden tensions, mistrust and cloak-and-dagger behaviour between the two countries. All the talk about common cultural and civilisational roots doesnt carry much weight for territorialised nation states, which have their own interests.

It is the conflict or congruence of these interests that can either cause rifts between states or bring them closer together. And in todays world, specific issues drive relations between states like Iran and Pakistan, and within the context of the larger strategic vision of each country.


We are not sure if the strategic visions or regional and outside powers and the games they play create any groundswell for comprehensive partnerships beyond certain specific issues. The strategic partnership between Iran and Pakistan was shaped by the dynamics of the Cold War, and American dominance in Iran ended three decades ago with the Iranian clergys capture of the state.

The Iranian clergymen, like their counterparts in Pakistan, have a worldview, a strategic map and a policy framework to order Irans regional and global relationships. In their bipolar view of the East (Muslim countries) and the West, Pakistan has been on the other side of their policy and ideological fence. It has not been easy for Pakistan to win real friendship of the post-Shah Iranian leadership.

We dont think Pakistans pragmatic tilt toward the West, more specifically the United States, was or could be a major roadblock in the way of closer relations between Tehran and Islamabad. What causes these hidden tensions, then, are conflicting interests in Afghanistan and horizontal partnerships between feuding Afghan social groups and regional states like Pakistan and Iran. This rivalry has fuelled the fire between the Taliban and the Northern Alliance, causing tremendous harm to Afghan society at large.

Conflicting visions of Iran and Pakistan have not changed in the structural sense, but there appears to be a growing agreement on three specific issues that may perhaps help to transform this relationship: the war on terror; the stability and reconstruction of Afghanistan; and energy trade.

These are not ordinary problems. They are critical and have the potential to reshape the development and security paradigms of the entire region. They key to all these issues is closer cooperation between Iran and Pakistan on the one hand, and between Afghanistan and Pakistan on the other.

While stabilising Afghanistan and creating a shared regional interest in the future of this state may take a long time, and the war against terrorism may require greater understanding than we have at the moment, the gas pipeline has a real chance of success. It can be a great infrastructural project, and the first of its kind to connect Pakistani consumers, industries and power plants to Iranian gas-fields.

What are its potential benefits and drawbacks for Pakistan? A straightforward argument is that the pipeline project is a perfect

match between a country with an energy surplus and an energy-deficient

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country, and that the deal is going to benefit both. It is a win-win situation.

The real potential benefit of energy trade between Iran and Pakistan, with the possibility of its extension to India once New Delhi is on board, is in creating latent interdependence. The reason for naming the proposed gas pipeline as a peace pipeline is because of its value in making the three countries interdependent on one another, and thus subjecting old disputes to the economic rationalism required in this day and age.

Economic interdependence leads to much larger and complex relationships, forming an unbreakable web and creating dense partnerships, and causing a spill-over from one set of issues to another. It is of course not an automatic process, and is subject to critical political decisions.

And those decisions are about how to harmonise conflicting strategic visions that dominate in our region in all other aspects of inter-state relations. We can also approach the issue of energy trade and larger economic cooperation by separating them from conflicting strategic pursuits, and then let the real economic benefits work on reshaping the respective strategic visions of each country.

The outcome will depend on whether it is economic rationalism or divergent strategic views that shape this partnership. It is better to realise economic benefits and let them shape the future course of our relationships than unsettled strategic problems and conflicts. But in a region like ours, competing security interests cannot easily be sidelined from the decision-making process.

Pakistan, however, runs the potential risk of over-dependence on Iranian gas, which may affect efforts to explore and develop our own gas fields. If all or most of the Iranian gas is used for the power sector, as stated by the government, then our energy mix will remain lopsidedly dependent on imported fuel.

Another serious question is why our rulers continue to ignore our hydroelectric power potential and the Thar coal deposits, some of the largest in the world. The lack of consensus that is often cited as the reason for not utilising our own resources is also politically manufactured, as the interests of important political players at a given point in time may demand something else.


Before we find leadership with a national vision and the political will to help ourselves through our own resources, let us do what energy-starved countries do: import.

Rasul Bakhsh Rais, Daily Times (Lahore), May 26, 2009, http://www.dailytimes.com.pk/default.asp?page=2009\05\26\story_26-5-

2009_pg3_2

GAZPROM AND IPI

Gazprom, the largest extractor of natural gas in the world and the largest Russian company, has indicated an interest in participating in the pipeline project carrying gas from Iran to Pakistan. Gazprom has more than adequate experience in the field. By end 2004 Gazprom produced 19.4 trillion cubic feet, or 85 percent of Russia's total gas production.

With reserves of 28,800 cubic kilometres, Gazprom controls 16 percent of the world's gas reserves and after acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels (18.9 km3) of reserves, ranks behind only Saudi Arabia, with 263 billion barrels (41.8 km3), and Iran, with 133 billion barrels (21.1 km3), as the world's largest owner of oil and oil equivalent in natural gas. It supplies gas to European countries and the European Union as a whole gets about 25 percent of its gas supplies from this company. However concerns about funding of the Iran-Pakistan-India (IPI) gas pipeline were attributed to the Bush administration's resistance to this project which, in turn, resulted in drying up of many a possible financial source.

The Obama policy on this issue is not yet clear however it is relevant to point out that Gazprom has the necessary finances to turn this deal into reality as, apart from its gas reserves and the world's longest pipeline network (150,000 km), Gazprom also controls assets in banking, insurance, media, construction and agriculture.

There is speculation that Gazprom's interest in the IPI pipeline project maybe due to Russia's geo-political considerations: Russia's resistance to the American supported Central Asia South Asia Regional Electricity Market (CASAREM) project that is focused on supplying energy deficient South Asia from energy surplus Central Asia. It maybe recalled that Gazprom, with the backing of the Russian government, agreed to purchase all surplus energy from the Central Asian Republics as a countermove to US efforts to open Central Asia's energy to South Asia.

16 IPRI Factfile

This latest show of interest in the IPI by Gazprom, therefore, may be seen as a countermove to previous American efforts to stall the deal.

However, there is an additional advantage to Gazprom for supporting the IPI deal. In the words of Kommersant, a Russian daily, "this project (IPI) is advantageous to Russia since its realisation would carry Iranian gas toward South Asian markets so that in the near future it would not compete with Russian gas to Europe." Spokesman of the company, Kupryanov, has confirmed Gazprom's interest in the project.

From the perspective of Pakistan, Gazprom may well provide an opportunity to translate IPI finally into reality. Gazprom not only has the expertise to lay the pipeline but also has access to financing if the government of Pakistan requests it. The 950-kilometre pipeline to be laid inside Pakistan territory carries a cost of 1.2 billion dollars if the pipeline is 42-inch that precludes India's buy in into the project at some future date.

A 56-inch pipeline costing 2 billion dollars would enable India to come into the project anytime later. Russian-Indian relations have traditionally been good, almost comparable to ours with China, and Gazprom's involvement, if guaranteed, may reactivate Indian interest in the project - an interest that would pay Pakistan dividends in terms of annual transit fee of millions of dollars.

Editorial, Business Recorder (Islamabad), June 1, 2009, http://www.brecorder.com/index.php?id=3756&currPageNo=1&query=&sea

rch=&term=&supDate=

FEASIBILITY OF IP GAS PIPELINE PROJECT: CONTRACT AWARDED TO GERMAN FIRM

Pakistan has awarded a contract to ILF Consulting Engineers of Germany for consultancy on Iran-Pakistan (IP) gas pipeline project to undertake project feasibility. The ILF will work in joint venture with Pakistan engineering consultancy agency, National Engineering Services Pakistan Limited (Nespak), Business Recorder learnt reliably here on Friday.

Only a pre-feasibility study has been undertaken on the IP gas pipeline project and a bankable feasibility study and Front End Engineering Design (FEED) are required to approach the investors and financiers for tendering and procurement of materials, equipment and appointment of construction contractors.


The ILF will undertake feasibility study, Environmental Impact Assessment, FEED and supervision of detailed route survey. The overall cost of services, through the international tendering, received by ILF-Nespak joint venture for both stages, amount to 48.9 million dollars - 15.5 million dollars for stage-1 and 33 million dollars for Stage-2 - against the second lowest bidder, Worley Parson's 138.7 million dollars.

ILF had taken part in the bidding process after pre-qualifying two-and-a-half years ago and was declared the lowest evaluated bidder. "But the award of consultancy contract was delayed due to late signing of the gas sales purchase agreement (GSPA) with Iran. The contract was signed in June 2009," said the sources.

According to sources, following the directions of the Steering Committee on IP on August 22, a meeting of all the stakeholders, including ISGS, SSGC and SNGPL, was held with the ILF-Nespak to discuss the options of allocating consultancy work among various participants, which remained inconclusive.

"Another meeting was held on October 28 in the Petroleum Ministry to sort out the issue, and after detailed deliberations, the decision was taken to award the contract to ILF-Nespak joint venture," the sources said. The German-based ILF consultants have expertise in tunnelling, underground construction, pipeline engineering, feasibility studies, social and environmental impact and detail design.

The government will initially arrange around 15 million-dollar financing through National Bank of Pakistan (NBP), for consultancy services to the ILF-Nespak on the IP gas pipeline project. The Finance Ministry has assured to make arrangement of financing in this regard. Pakistan has already agreed to import 750-mmcfd gas and would seek additional 250-mmcfd gas from Iran on the request of Balochistan government to meet Gwader Port's requirements.

"If the Economic Co-ordination Committee (ECC) gave the nod for additional gas import from Iran, then the size of the pipeline would be increased and Pakistan will have to take up the issue of the size with Iran," the sources said. "If the volume of gas imports is increased, the size of the pipeline may have to be increased to 48 inches, said the sources.

The cost of construction of 42-inch pipeline - from Iran to Nawabshah - was estimated at 1.2 billion dollars. However, with increase in the size, the cost would rise. At present, 48 percent thermal power generation is based on furnace oil, out of which about 62 percent is imported. One bcfd gas will generate an estimated 5,000-mw electricity.

18 IPRI Factfile

Recent studies have shown that the imported gas would be the most economical fuel compared with other imported fuels.

Zafar Bhutta, Business Recorder (Islamabad), November 14, 2009, http://www.brecorder.com.pk/index.php?id=986351&currPageNo=1&q

uery=&search=&term=&supDate=

WILL CHINA JOIN THE IRAN-PAKISTAN-INDIA PIPELINE? For over a decade Iran, Pakistan and India (IPI) have took pains at negotiating a major pipeline deal whereby Iran would send natural gas from its territory to the region. Yet geopolitical and commercial issues have repeatedly prevented the deal's fruition despite Tehran's growing need to diversify gas sales to Asian markets and Asian countries desire to find a stable, reliable source of gas supplies. In recent years, Indias participation in this project has become more uncertain, which is partly responsible for the long delay that the project has suffered to date. Irans repeated attempts to raise the price of gas, US pressure on India to refrain from participating in the pipeline, external skepticism about Iranian capability to fill the pipeline as it promises, Indian concerns about the overall stability of Pakistan, and in particular, the possibility of terrorism in Pakistans Balochistan province through which the pipeline would travel all contributed to India's angst (Janes Intelligence Review, February 11). Indeed, Iran recently warned India that there is a limit to its patience in waiting for New Delhi to decide (Thaindian.com, February 9). Iran was apparently able to present this ultimatum because it believes that it now has the China card in its deck. In early February, Iranian Foreign Minister Manucher Mottaki reportedly said that Iran was ready to start the pipeline at any timeeven without Indiaand urged Pakistan not to heed US pressure against the pipeline as China could soon replace India in the deal (Press Trust of India, February 8). Background

Iranian President Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zardari inked a $7.5 billion agreement in Tehran on May 23, 2009 to transfer gas from Iran to Pakistan. According to the 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. The pipeline will be supplied from the South Pars field. The initial


capacity of the pipeline will be 22 bcm of natural gas per annum, which is expected to be raised later to 55 bcm (Zawya.com, February 5).

After many months of negotiations, on February 11, 2010 Islamabad and Tehran were able to finalize the agreement on the issues, including the issuance by Pakistan of a "comfort letter" that provided Iran with the assurance that Indiaor Chinacould be brought into the project later. The two parties have vowed to sign the formal agreement by March 8 in Ankara, Turkey. The News reported:

Under the comfort letter, the government of Pakistan would allow the third country to import gas through [the] IP [Iran-Pakistan] line in case any country in future comes to join the project, but the permission will be subject to the gas tariff and transit fee to be worked out as per best practices of that time (The News [Pakistan], February 15).

Chinese Interests in the IPI Pipeline

Perhaps the most interesting aspect of Irans most recent announcement is that China has yet to comment publicly on the pipeline except that it is studying the Pakistani proposal. And that was in 2008. Chinese foreign minister, Yang Jiechi said at that time: We are seriously studying Pakistans proposal to participate in the IPI gas pipeline project (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Pakistan clearly wants China to join the pipeline for many reasons. Islamabad desperately needs the gas that might not come otherwise if there is no third party to make the deal profitable to Iran. Second, it would gain much revenue from the transit fees for the gas going to China and benefit considerably from the ensuing construction of infrastructure within Pakistan. Third, it would further solidify its all-weather relations with China. Those goals have always been part of Pakistans foreign policy and explain not only its interest in the original pipeline plan but also its previous invitations to China to join the project. The prospect of an invitation to China was also used in the past to galvanize Indias decision-making process regarding the pipeline (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008).

Throughout the spring of 2008, former Pakistani President General Pervez Musharraf and his government frequently courted Chinese leaders to join the pipeline project, a pitch that Musharraf also tied to an earlier proposal of establishing a corridor linking Pakistan to China through rail, road and fiber optics. At that time, China promised to consider the proposal and then asked for more information, but did nothing else,

20 IPRI Factfile

leaving the issue in abeyance (Indian Express, April 15, 2008; The Indian, June 19, 2008). Subsequently, Pakistani media reports claimed that China was keen on joining the pipeline and would send a delegation to negotiate the deal, but clearly, nothing came of it (The Indian, June 26, 2008). In 2009, Irans ambassador to India, Seyid Mehdi Nabizadeh, told Indian journalists that China was interested in the pipeline, but he too refused to confirm if talks with China were taking place (The Indian, September 15, 2009). Based on this precedent, it may be possible that these Pakistani and Iranian gambits were spurious to begin with and its purpose was to pressure India or entice China into joining the pipeline project.

There is considerable interest among external observers in the pipeline and from Chinese officials have sporadically expressed an interest in it. For example, Chinas ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, while Indias minister for State Planning M.V. Rajashekaran, also said that once the pipeline is completed it could be extended to China. Gazprom and the Russian government have long since indicated a desire to participate in sending oil and/or gas to the subcontinent through the IPI (ITAR-TASS, April 17, 2007). Indeed, one Russian official, Gazproms man in Tehran, Abubakir Shomuzov, has even advocated extending the IPI pipeline to China to tie Russia, China, India, Pakistan and Iran together in a very big project having major strategic implications as well as a huge number of consumers. Presumably, such statementsif not plansare intended to mollify Chinese concerns about the possibility of Russian energy being diverted from it to India (The Hindu [Internet Version], May 7, 2007). Nevertheless, if one correlates Chinas recent maneuvers in Central Asia concerning pipelines with its deals with Iran, it is clear that China is contemplating a pipeline network running from Iran either through Central Asia, or prospectively through Pakistan and/or India to China (Central Asia Caucasus Analyst, September 19, 2007).

In this context, the IPI pipeline poses several risks and opportunities for Beijing. If India exited the pipeline, that would lessen Irans leverage to drive a hard bargain on gas prices. At the same time, as part of the overall strategy to build pipelines from Iran to China, or at least to Gwadar from where gas or oil could be shipped directly to China, Chinese participation would create a new overland energy link that could complement Chinas energy diversification strategy. Nevertheless, the project also faces several political and logistical difficulties that could scuttle Chinese participation. The pipeline is planned to traverse a very


difficult terrain in Pakistans Gilgit region. That would increase the costs and time required to eventually connect the pipeline to Xinjiang. Moreover, the risks inherent in Pakistan and Iran also pose problems. The massive investment required to link China to the pipeline would be susceptible to many risks since it falls along a major fault line of instability, as there could be large-scale terrorism in the territory of the pipeline or more generally from a mass civil upheaval in Pakistan. In view of these positive and negative aspects to the deal, some observers suggest that Beijing might just be feigning interest in the IPI pipeline to get a better deal in negotiations with Russia on relatively safer Siberia-China gas pipelines. Certainly if the prospect of China obtaining a secure and stable supply of gas from Iran would reduce its need to get that gas from Russia and give it even more leverage over Russia in the current negotiations on gas pipelines from Siberia to China than it already possesses.

There is another aspect to this deal too. China has recently stuck its neck out for Iran in its call for continuing negotiations with Iran over its nuclear enrichment programs irrespective of the fact that Tehran is clearly defying the IAEA and the offers of the six negotiating partners (United States, Great Britain, France, Germany, and Russia). On February 24, 2010 Foreign Ministry Spokesman Qin Gang stated that, "China holds that the parties should continue to step up diplomatic efforts in a bid to maintain and promote the process of dialogue and negotiations," said Qin, "China hopes the parties demonstrate more flexibility and create conditions conducive to a comprehensive and proper solution to the Iran nuclear issue through diplomatic means" (China Daily, February 24).

Chinese sources also report that Iran is able to resist the United States because the political situation in Iran is stabilizing (Xinhua News Agency, February 24). This suggests a more optimistic view of the domestic situation in Iran than might be the case elsewhere. Likewise, it appears that China suspects US motives in the region. High-level visits by US Secretary of Energy Steven Chu to Saudi Arabia and by another high-level Israeli delegation to China aim to wean China away from Iran in return for the United States brokering increased oil exports from Saudi Arabia to China. The Chinese media apparently considers this a trap to get China to renounce its principles for transitory economic gain (China Daily, February 24).

22 IPRI Factfile

Conclusion

At the same time, if China did become a full partner in the IPI pipeline that would offer it another opportunity to build on Beijings so-called strategy of building what has been called a string of pearls across the Indian Ocean. Chinese officials have publicly stated their desire to turn the Chinese-built Pakistani port of Gwadar into an energy hub. China also has substantial interests in overland transport links in Pakistan through the Karakorum Highway and participation in the IP pipeline would extend those interests deeper. Indeed, many observers in New Delhi and Washington view Sino-Pakistani collaborations to build naval facilities and oil refineries at Gwadar as a prelude to the establishment of a Chinese naval base there. Whether this is true or not, if China joins the IPI project, then the odds of China supporting American efforts to isolate Iran would effectively be reduced to zero because it would depend too much on Iranian gas, in addition to its recent oil contracts to antagonize Iran by siding with Washington. While we wait to see how China decides to play this issue, the United States needs to understand that Beijing's decision to join or stand aloof from this pipeline will have major geopolitical repercussions and comparable geo-economic repercussions across Asia, another sign not only of the integration of south and southwest Asia with East Asia, but also of Chinas rising importance as the nexus of the Asian continent.

Jamestown Foundation, Stephen Blank, March 5, 2010, http://www.jamestown.org/programs/chinabrief/single/?tx_ttnews[tt_news]=3

6122&tx_ttnews[backPid]=25&cHash=0e88d5e465

IP PIPELINE PROJECT TO COST $3-4 BN

Federal Minister for Petroleum and Natural Resources Naveed Qamar said total estimated cost for Iran-Pakistan (IP) gas pipeline project is $3-4 billion and this project would start likely in the next three to four years, while Turkmenistan gas pipeline project will be discussed next month.

While talking to media after addressing the 25th annual general meeting and conference held by Pakistan Society of Development Economists (PSDE) here on Tuesday, he said Pakistan and Iran were going to sign Iran-Pakistan (IP) gas pipeline agreement in Istanbul today (Tuesday) and in the next phase the survey of the site and documentation work would start soon.


He said the Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Company Limited (SSGC) would be responsible to complete this project due to having 50 percent share each in IP gas pipeline project.

Government of Pakistan (GoP) would ensure to provide guarantee of $3-4 billion investment for Iran-Pakistan (IP) gas pipeline project.

While answering a question, he said no further progress could be achieved on Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project due to insurgencies in the region but hopefully the project would be launched next month. We will try our level best to utilise all bilateral options to finalise this project, he maintained.

Zeeshan Javaid, Daily Times (Lahore), March 17, 2010, http://www.dailytimes.com.pk/default.asp?page=2010\03\17\story_17-3-

2010_pg5_8

IRAN AND PAKISTAN SIGN HISTORIC PIPELINE DEAL Pakistan and Iran have signed an agreement for the construction of a much-delayed natural gas pipeline, officials say.

The $7.6bn project is crucial for Pakistan's growing energy requirements. The country has suffered severe electricity shortages.

The deal was signed between the two countries in Turkey. The pipeline was initially intended to carry gas on to India, but

Delhi withdrew from negotiations last year. Peace Pipeline

Pakistani Petroleum and Natural Resources Minister Naveed Qmar described the signing of the deal as a "milestone towards meeting energy needs of the country".

The pipeline will connect Iran's South Fars gas field with Pakistan's Balochistan and Sindh provinces.

Officials say the treaty was delayed because Pakistan had been unable to arrange funding.

Under the terms of the deal, Iran will provide 750m cubic feet of gas per day to Pakistan. The line should become operational by 2015.

Each country will be responsible for building the section of pipeline that runs through its own territory.

24 IPRI Factfile

Labelled the "peace pipeline," the project was first mooted in the 1990s and originally would have extended from Pakistan to India.

Correspondents say that Delhi has been reluctant to join the project because of its long-running distrust of Pakistan, with which it has fought three wars since independence in 1947.

India has instead invested in civilian nuclear reactors to help fulfil its increasing energy demand. It also signed a landmark civilian nuclear deal with the United States in 2008.

Pakistan has argued that it too should make a similar deal with Washington, but correspondents say that so far the US has not shown much enthusiasm.

Under the terms of the deal signed on Tuesday, Pakistan is allowed to charge a transit fee if the pipeline is eventually extended to India.

Correspondents say the deal is not likely to be welcomed by the US - because of Tehran's suspected ambitions to build nuclear weapons.

Iran denies any such ambitions.

BBC News, March 17, 2010, http://news.bbc.co.uk/2/hi/8572267.stm

PIPELINE AGREEMENT

It is comforting to know that the much-delayed gas pipeline project between Pakistan and Iran is now ready to roll. The deal was signed in Istanbul on Tuesday where the Pakistani side was represented by its Secretary Petroleum. It is the result of the initial agreement signed between President Zardari and President Mahmoud Ahmedinejad in Tehran last year. Minister of Petroleum and Natural Resources Naveed Qamar was euphoric and termed the development as a landmark that would go a long way in fulfilling the countrys energy needs. It is good to know that the construction work would start this year and it would be operational by 2014. Since all the hurdles have now been removed, it is hoped that things would go according to plan and both governments would be able to meet that deadline.

Concurrently, one cannot help but think of the US, which had been opposing the IPI tooth and nail on account of its standoff with Iran. It has left no stone unturned to stymie the project ever since it was conceived. As part of its design to isolate Iran, it persuaded Islamabad and New Delhi to opt for the unrealistic Turkmenistan-Afghanistan-Pakistan-India pipeline instead, despite knowing that the unrest in Afghanistan was


a big hindrance. Following the US agenda, India at present has decided to quit; however, it is heartening to note that Pakistan and Iran have planned to go ahead. If the past is any guide, the US will definitely try to sabotage the project for which caution is a must.

Smooth process of implementation from now on to its completion will do credit to the government. Most important, given the power shortfall we are facing, it would turn out to be a real blessing for us. The gas would be used for energy generation and would add 5000MW of energy to the national grid. Though by the time the pipeline becomes operational, our supply and demand gap would have also increased, it would ensure that the situation remains under control.

Editorial, Nation (Islamabad), March 18, 2010, http://www.nation.com.pk/pakistan-news-newspaper-daily-english-

online/Opinions/Editorials/18-Mar-2010/Pipeline-agreement

IRAN-PAKISTAN GAS PIPELINE

Pakistan and Iran signed the Heads of Agreement (HoA) and Operational Agreement (OA), in Istanbul, on Tuesday. This, it was revealed, would bring the laying of the pipeline that would make gas available to fuel-starved Pakistan, from gas surplus Iran, one step closer. There is little doubt that if the Iran-Pakistan gas pipeline becomes operational, then Pakistan's fuel supply woes and the ongoing deeply worrying power demand-supply gap would be bridged.

However, this particular hapless project has been held hostage to the signing of non-binding agreements since its conceptualisation and even after the passage of two decades since it was first proposed, not a single pipe has been laid to give it even a semblance of reassuring reality. In this context, Naveed Qamar, who signed the HoA and OA on behalf of Pakistan, would forgive the country for not considering this a major landmark achievement.

Pakistan has learned, much to its chagrin, of the many slips between the cup and the lip as far as this project is concerned. It was first conceptualised as far back as in 1989 by Rajendra Pachauri, an Indian national, together with Ali Shams Ardekani, former Deputy Foreign Minister of Iran, who then proposed it to their governments the following year.

The pipeline was proposed to start from Asalouyeh (South Pars Field) and stretch over 1100 kilometers through Iran. In Pakistan, it was

26 IPRI Factfile

to pass through Balochistan and Sindh. The initial capacity of the pipeline was to be 22 bcm of natural gas per annum, expected to be raised later to 55 bcm, at a cost of US $7.5 billion.

Thence began a series of disagreements between the three participating countries that created hurdles in the way of its launch. The first area of disagreement was the price. In July 2006, Iran demanded US $7.20 per million British Thermal Unit (BTU), a price offer the Indians claimed was 50 percent higher than the prevailing market price in India and, therefore, not economically viable.

In 2005, the then Indian Petroleum Minister Mani Shankar Aiyar announced that his country may withdraw from the gas deal. "We will not buy gas from Iran if we cannot sell it in India," he is credited with saying. Aiyar clarified that Iran wanted to charge as much for natural gas as it does for LNG (about $4 per million BTU), whereas the main Indian consumers - fertiliser and power sectors - would be unwilling to pay more than $3 per MBTU.

With the addition of transportation and transit charges to the Iranian price, the Minister added, the gas would end up costing $4.50 per MBTU. He also pointed out that as India and Pakistan will need approximately 200 million standard cubic meters of gas daily, Iran should offer a special price for such a large order.

In February 2007, the three countries agreed to US $4.93 per million BTU, however details regarding price adjustment, in case the international price of gas/alternative fuels rose, was not firmed up and continued to be a sore point in negotiations. Pakistan has, however, agreed to the latest Iranian price on offer and one would hope that appropriate cost-benefit analysis would have been undertaken to ensure that the gas price is feasible.

The second area of disagreement erupted when India expressed concern over its energy security with respect to this project, as the pipeline would have passed through its nuclear rival Pakistan, prior to reaching India. The implications of this on Pakistan are considerable, as we would lose over 200 million dollars per annum on transit fees.

And finally, American sanctions against Iran, that have continued to this day, would imply continuing US pressure for scuppering the deal. India has already opted out of the project, though all three areas of disagreement/concern were probably responsible for India abandoning the project.


For Pakistan, there is an additional element of concern with respect to ensuring the security of the gas pipeline through our restive Balochistan province, which may further compromise our cash-starved government's capacity to attract adequate investment for the laying of the pipeline. One sincerely hopes that the Pakistan government would revisit the cost and benefit that would accrue from this project in an effort to ensure that the gas deal is in our best interest.

Editorial, Business Recorder (Islamabad), March 20, 2010, http://www.brecorder.com/index.php?id=1033849&currPageNo=1&query=&

search=&term=&supDate=

IPI: THE BALOCH PERSPECTIVE

Balochistan, the size of Texas and that accounts for 44 per cent of Pakistan and 16 per cent of Irans landmass, is a strategically important area.

By virtue of its energy resources and its location, it is key to the energy supply to South Asia, including Pakistan. The countrys mounting energy crisis and the growing demand for energy security in the region have magnified Balochistans economic and strategic importance.

Yet without addressing the grave political challenges in the province, Islamabad is pursuing an ambitious plan to import one billion cubic feet (bcf) of gas per day through the 2,100km-long Iran-Pakistan-India (IPI) gas pipeline.

Balochistan is the only potential land route for the proposed $1.2bn pipeline. A major part some 1,500km of the 2,100km-long conduit which will connect Irans Pars gas field to Pakistans main distribution system in Nawabshah, will cross Baloch territory in Iran and Pakistan.

Islamabad has been pursuing the IPI project since 1993. Initially, a memorandum of understanding was signed for the construction of an Iran-Pakistan gas pipeline, a project that India later wished to join. The project envisaged a 2,670km land pipeline with a 3,620 million cubic feet per day (mmcfd) gas transmission capacity.

Pakistan and Iran signed the agreement and an operational accord in Istanbul on March 17. However, it is not clear how these new agreements are different from the ones inked during President Asif Ali Zardaris visit to Tehran in May last year, following which officials from the newly-formed Inter State Gas System (ISGS) quietly signed the controversial gas sale-purchase agreement in Istanbul.

28 IPRI Factfile

The policymakers in Islamabad need to take a very realistic approach towards energy security. Amongst the major issues is the seemingly endless political conflict in Balochistan, along with US concerns, high pricing and the threat posed by religious militants.

If billions of dollars are invested in the pipeline before addressing these chronic issues, the whole project is bound to backfire. Islamabad has, as usual, committed a significant political blunder by overlooking the importance of Baloch consent on the proposed gas channel.

Baloch opposition to such a trans-national pipeline was voiced as far back as 2005 when veteran Baloch nationalist Akbar Khan Bugti said that only the goodwill of the Baloch people can allow the proposed gas pipeline from Iran and Central Asia to India to pass through their soil.

Sanaullah Baloch, Dawn (Islamabad), March 22, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-

newspaper/editorial/ipi-the-baloch-perspective-230

PIPELINE POLITICS The US is understood to be displeased with the idea of Pakistan obtaining gas from Iran and has indicated that such a deal is not appropriate at this time. We all know why this idea has surfaced. Washington is quite evidently eager to see Pakistan playing along with its strategy to isolate Iran and add to the pressure it has faced for refusing to bow down to external dictates. This is a blatant case of tampering with Pakistan's internal affairs that it must resist at all costs. At present, more than anything else, Pakistan needs energy. The lack of gas and power has already crippled many sectors of the economy. It has also added to the distress of people. Islamabad needs to direct urgent attention to solving the problems the energy crunch has created. Indeed too much time has already been lost. Impatience is growing. Tehran meanwhile asks why its offer of power, at rates cheaper than those put forward by anyone else, is not being accepted. It is quite possible the answers lie in Washington.

Islamabad needs to convince people in the US capital that it is interference of this kind which makes the US a nation seen with immense suspicion within the country. As a neighbour to Iran, Pakistan has a great deal to gain by maintaining close ties with it and indeed by building on the foundation that already exists. The pillars which hold this up must not be allowed to crumble. There is another facet to all this. Islamabad


must place the interests of its people on a higher priority than the interests of another country. The pipeline is potentially of prime importance to the people. There is every reason then to go through with it, indeed to step up endeavour in this regard, and by doing so send out a clear message to the world that Pakistan is a sovereign nation which does not take orders from anyone else.

Editorial, News International (Rawalpindi), April 3, 2010, http://www.thenews.com.pk/daily_detail.asp?id=232339

UNREALISTIC ADVICE Coming in the wake of the strategic dialogue last month, Americas advice to Pakistan not to proceed with the Iran gas pipeline project sounds rather odd.

Pakistans energy needs figured in the high-level dialogue in Washington, and America made it known that energy was one of the sectors where the US would cooperate with Pakistan to reduce the demand-supply gap. Yet on Tuesday, Assistant Secretary of State Robert Blake told newsmen that it was not the right time for Pakistan to go ahead with the pipeline project with Iran, and that Islamabad should seek other alternatives.

There is no space here to go into the details of what Pakistan has been doing although failing in its attempts to tap a variety of resources for managing the acute power crisis that has hit the economy. Pakistan cannot blame others for its failure to develop its considerable hydro-electric potential. The Thar coal project for power generation is still years away from being realised. Although a subject of some interest, solar energy too has yet to see the light of day. Nuclear power could bail out Pakistan, but unfortunately the US-led group of donors has placed Islamabad virtually under sanction. The only country willing to cooperate with Pakistan in the nuclear sector is China, but Beijings ability in this respect is limited. Islamabad thus has no choice but to seek other alternatives and get gas and electricity from energy-surplus countries. Tajikistan too has been approached by Pakistan for supplying electricity, and Islamabad is negotiating with Qatar for importing LNG, more so because the Turkmenistan gas pipeline project is unlikely to materialise because of the war in Afghanistan. With its own proven gas reserves dwindling Pakistan cannot go back on the Iran deal,

30 IPRI Factfile

notwithstanding Indias virtual sabotage of the project when it pulled out under American pressure.

New Delhi could afford to do so, because it has been richly rewarded by Washington through a fabulous nuclear deal. Since the Bush era, American officials have made it abundantly clear that a similar nuclear deal with Pakistan is out of the question. Notwithstanding the recent media reports, there is no evidence that indicates a possible change in the American attitude on the issue. The Iranian pipeline will do nothing more than supply gas to Pakistan, and it would be folly to see too much in it and link it to Iran and the nuclear issue. China and Russia, too, have reservations over Tehrans nuclear ambitions, but that has not stopped them from having lucrative power deals with Iran.

Editorial, Dawn (Islamabad), April 3, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/the-newspaper/editorial/unrealistic-advice-340

US OBJECTION TO PAK-IRAN GAS PIPELINE The United States has once again objected to Pakistans deal for a $7.5 billion gas pipeline with Iran and its assistant secretary of state Robert Blake advised Islamabad at a briefing in Washington the other day that this is not the right time to have transaction with Tehran which is in conflict with the international community over its nuclear programme. The US itself would not either encourage large investments in any Iranian project, Blake said. Pakistan and Iran concluded the deal after 14 years of delayed negotiations over the Iran-Pakistan-India (IPI) gas pipeline project that concluded last year. Iranian President Mahmoud Ahmadinejad and his Pakistani counterpart, Asif Ali Zardari, signed the agreement in Tehran on May 23 for the supply of about 750mn cubic feet of gas a day to Pakistan by 2014. Pakistan has already appointed a German designer for the pipeline that would enter Pakistan from its border near Gwadar area to Nawabshah, which is the hub of gas pipelines in the country. The 56-inch diameter pipeline is 2,700-kilometre in length, covering around 1,100 kilometres in Iran, 1,000 kilometres in Pakistan and around 600 kilometres in India. Islamabad has said it will use Iranian gas for the generation of some 5,000MW of thermal power and save about $1billion of import of furnace oil for the purpose. The project initiated in 1995 but India withdrew last year after the US concluded a civil nuclear deal with New Delhi. However, Iran and Pakistan have left room for India to join


later. This is not the first time that Washington has opposed the project. The US administration has succeeded in isolating India. It now wants Pakistan to follow suit at a time when it is suffering a huge power shortfall and the US administration has committed only peanuts at the end of recent talks in Washington. Not only the US administration has virtually declined Islamabads request of a civil nuclear agreement to acquire nuclear energy, it committed a meagre assistance of $125 million for the up-gradation of powerhouses and transmission lines and only promised the repair of power stations and 11,000 agricultural irrigation pumps. The opposition to Iran-Pak gas pipeline in this situation means that Washington wants Pakistan to continue languishing in dark and degradation; a client state that is subservient to its imperialist policy of hegemony. The US is emboldened in its attempt to dictate Pakistan because no administration here has challenged its designs in more than six decades; and Pakistans spineless foreign policy has always failed in safeguarding even the most vital of national interests. Producing cheap electricity is the inalienable right of Pakistan and if Iran is ready to help in meeting huge power shortage, the US has no business to impede Pakistans way to lessen shortfalls in electricity generation. It would be ironical if Islamabad concedes to the wish of a country thousands miles away and ignores the cooperation of a neighbouring state. Pakistan must dismiss with contempt the Washington plea against the Pak-Iran gas pipeline as this project is in the countrys interest and no plea is greater than progress and the prosperity of the people.

Editorial, Frontier Post (Peshawar), April 3, 2010, http://www.thefrontierpost.com/News.aspx?ncat=ed&nid=68

FRIVOLOUS OBJECTIONS TO GAS DEAL WITH IRAN

At last, the cat is out of the bag. The United States, which has been dropping strong hints of providing financial and technical assistance to Pakistan in overcoming the ongoing energy crisis, has raised objections to Islamabads deal with Tehran for import of gas. US Assistant Secretary of State Robert Blake, on his return to Washington from a trip to Pakistan, Afghanistan and India, told newsmen that the United States has advised Pakistan to seek other alternatives because of Irans dispute with the international community.

Americans used similar tactics to dissuade India from joining the trilateral gas pipeline project despite the fact that Indias fast growing

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economy badly needs energy security. Both India and the United States used IPI project as a bargaining chip during negotiations on nuclear accord. In this backdrop, one can understand why the United States, unlike its previous stand, is showing willingness to discuss the possibility of nuclear cooperation with Pakistan as well. We would, however, warn the Government not to fall into the US trap and move swiftly on Iran gas pipeline project, which is of critical significance for economy of Pakistan. Our domestic gas reserves are depleting fast and there is no progress towards implementation of much-talked-about import of gas from Turkmenistan because of uncertain situation in Afghanistan, which is unlikely to improve in the near future. The severe shortage of gas witnessed by the country especially during recent winter is a clear indication that domestic, commercial and industrial consumers would continue to suffer for years if no tangible steps were taken to meet the gas shortage. Pakistan and Iran have spent years in finalizing the deal and prudence demands that the project should be implemented without loss of further time as even Chinese have shown interest to fund the project. Americans have their own interests but Pakistan must steadfastly pursue things strictly in accordance with its national interests. We hope that the Government would be able to convey to the United States that the project has nothing to do with international politics, rather it is a project of economic significance to Pakistan.

Editorial, Pakistan Observer (Islamabad), April 3, 2010, http://pakobserver.net/detailnews.asp?id=23691

PIPELINE POLITICS If one idiom has been overused in the context of US-Pakistan relations, it is that of the carrot and stick. Often deployed in a military context, the phrase refers to aid, weapons and other defence equipment the carrots are meant to soften the blow of sticks demanding more army action against terror networks.

Now that the US is rebranding its relationship with Pakistan by placing new emphasis on civilian energy investment, the idiom is once again the catchphrase of the day.

Recently, US Assistant Secretary of State Robert Blake announced that Washington had advised Islamabad to seek alternatives to the proposed Iran-Pakistan pipeline. According to an operational agreement for the proposed pipeline signed between Islamabad and Tehran last


month, Iran will supply 750 million cubic feet a day of gas to Pakistan for 25 years. Blake explained that owing to the ongoing dispute between Tehran and the international community regarding Irans nuclear ambitions, the US is opposed to any large investments in Iranian projects.

This is yet another issue on which the Obama administration is echoing the views of its predecessor, George W. Bush. The former administration too resisted the pipeline and exerted pressure on both Pakistan and India to abandon the project.

The US governments decision to wave a stick at the pipeline project has savvy timing, following the weeklong strategic dialogue in Washington, where Pakistan was permitted to nibble at a few carrots. During those discussions, the US reiterated its commitment to helping Pakistan meet its energy needs, pointing to $125m provided for energy projects. Far more importantly, Washington did not outright reject Pakistans demand for a civilian nuclear deal akin to the 2008 US-India civilian nuclear deal (though it did not make any commitments either).

Some analysts have concluded that Pakistan is now faced with a neat either/or option, which would involve abandoning the pipeline project in favour of a civilian nuclear deal with the US. Nothing, however, could be further from the truth. The Iran-Pakistan pipeline will have profound implications on the geopolitics of energy and the balance of power in the region. There are many reasons why swapping out such a complex project, which has been in the works since 1994, for another energy deal is difficult and inadvisable.

Pakistan is already suffering serious energy shortages, with an electricity shortfall of over 3,000MW. Only 60 per cent of Pakistani households currently have electricity, and only 18 per cent have access to pipeline gas for heating. In short, Pakistan needs the pipeline project, which is scheduled to be completed within five years, as well as other civilian energy deals with the US, China and the Central Asian states.

Moreover, a US-Pakistan civilian nuclear deal remains, so to speak, a pipedream. During the strategic dialogue, Washington entertained Islamabads request, but made no overtures to indicate that it would ever be fulfilled. It doesnt help that if a deal were to be negotiated, it would be saddled with conditions that Pakistan is not prepared to accept, such as international access to Dr A.Q. Khan and complete disclosure about all proliferation activities.

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Islamabad also cannot decline to engage with Tehran on the pipeline project owing, ironically enough, to Washingtons own concerns about Pakistans shabby non-proliferation record. After all, a country that is not a signatory to the Nuclear Non-Proliferation Treaty, and which cannot be trusted by the US to receive a civilian nuclear deal, is hardly in a position to chastise Tehran for its own desire to attain nuclear technology.

Pakistan must view US objections to the pipeline project with scepticism, for they exist in a broader regional context. The pipeline will, for example, help Iran check growing US influence in Afghanistan, Pakistan and India. By exploiting its vast gas reserves, Iran can become economically independent and exert political leverage, and the last thing Washington wants to deal with is a Tehran enjoying more regional clout and therefore defying US pressure.

Rather than toe the Obama administrations line, Pakistan should consider the fallout of a more influential Iran on its own terms. For example, sectarian tensions are on the upswing across the country, and it would be nave to think such violence is immune to outside interference. Militant activity also persists across the Pakistan-Iran border, and joint intelligence could prove useful. Strong diplomatic relations with Iran resulting from an energy investment project could help maintain security.

That said, Pakistans involvement should depend on which other parties sign on to the pipeline project. Although India boycotted project talks in 2008 citing concerns about gas pricing and secure delivery, it has not closed the door on participating, and trilateral meetings to allay Indias concerns are scheduled for next month.

Pakistan should pressure Iran to meet Indian demands and restore the project to its original trilateral dimensions, for mutual energy dependence can help promote India-Pakistan peace. A viable gas deal will check tensions arising from Pakistan and Indias dispute over water resources, particularly the Kishenganga power project. Moreover, knowing that its gas reserves are running through Pakistan will encourage New Delhi to boost regional security, and stay away from its alleged role in Balochistan. Indian involvement in the pipeline will also make the project more financially viable and operationally transparent and efficient. Pakistan would generate revenue by charging India transit fees to ensure the safe delivery of gas at its border. Such payments could set


the stage for trade and investment beyond the energy sector, which are ultimately the keys to long-term peace with India.

If India refuses to join the pipeline project, Pakistan should push forth its proposal to secure Chinas involvement in the project. The pipeline could further strengthen Islamabad and Beijings all-weather relationship for several reasons. The pipeline would be seen as a quid pro quo for Chinese investment in Pakistans energy sector in the form of two nuclear power reactors pledged in October 2008. China is keen to secure energy supplies that can be shipped overland since the US Navy exerts great control over the seas and could interrupt Chinese energy flows. Further afield, the pipeline project could help ease Sino-Russian tensions as it would make competition over Central Asian gas reserves unnecessary.

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Iran gas pipe line