Iran Pakistan Peace Pipeline

Iran–Pakistan 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 Pakistan’s 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, Pakistan’s 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 Iran–Pakistan–India 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 Iran’s total proven natural gas reserves and 8% of the world’s 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 Iran–Pakistan–India (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 Iran’s Oil Ministry had said that negotiations on the ‘Peace Pipeline’ project were still underway between Iranian and the Pakistani delegations, which would allow Iran’s 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 Pakistan’s


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 Iran’s 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 communiqué 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 Iran’s 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 Pakistan’s 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 province’s 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 India’s entry in view. Very importantly, Pakistan has displayed a measure of independence vis-à-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 world’s 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 pipeline’s 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. Iran’s own relations with India went through some ups and downs because of the former’s frequent “change of mind” on done deals. Pakistan also faltered on oil-pegged price-setting with Iran in a seller’s 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 India’s 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 doesn’t, 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 Pakistan’s final decision to take on the Taliban inside Pakistan. Only a few months ago, hostile commentators in Pakistan were “noting” the presence of Iran’s 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 Pakistan’s opting for its true role in South Asia, the gas pipeline will serve to integrate the regional economies. Pakistan’s 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 Zardari’s 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, don’t 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 don’t 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 doesn’t 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 today’s 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 clergy’s capture of the state.

The Iranian clergymen, like their counterparts in Pakistan, have a worldview, a strategic map and a policy framework to order Iran’s 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 don’t think Pakistan’s 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, India’s participation in this project has become more uncertain, which is partly responsible for the long delay that the project has suffered to date. Iran’s 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 Pakistan’s Balochistan province through which the pipeline would travel all contributed to India's angst (Jane’s 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 time—even without India—and 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 India—or China—could 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 Iran’s 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 Pakistan’s 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 Pakistan’s 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 India’s 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, Iran’s 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, China’s ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, while India’s 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, Gazprom’s 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 statements—if not plans—are 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 China’s 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 Iran’s 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 China’s 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 Pakistan’s 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 Beijing’s 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 China’s 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 country’s 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 Iran’s 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 country’s mounting energy crisis and the growing demand for energy security in the region have magnified Balochistan’s 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 Iran’s Pars gas field to Pakistan’s 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 Zardari’s 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, America’s advice to Pakistan not to proceed with the Iran gas pipeline project sounds rather odd.

Pakistan’s 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 Beijing’s 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 India’s 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 Tehran’s 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 Pakistan’s 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 Islamabad’s 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 Pakistan’s 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 Pakistan’s 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 country’s 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 Islamabad’s 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 Iran’s dispute with the international community.

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

32 IPRI Factfile

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 Iran’s 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 government’s 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 Pakistan’s 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 Islamabad’s request, but made no overtures to indicate that it would ever be fulfilled. It doesn’t 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.

34 IPRI Factfile

Islamabad also cannot decline to engage with Tehran on the pipeline project owing, ironically enough, to Washington’s own concerns about Pakistan’s 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 administration’s 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 naïve 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, Pakistan’s 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 India’s 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 India’s 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 China’s involvement in the project. The pipeline could further strengthen Islamabad and Beijing’s ‘all-weather’ relationship for several reasons. The pipeline would be seen as a quid pro quo for Chinese investment in Pakistan’s 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.

Given the far-reaching geopolitical ramifications of the pipeline project, and especially its potential for boosting regional security, Pakistan should not jump to abandon the project on the US’s directive. Nor should Islamabad engage in a tit-for-tat dialogue, offering to set aside the pipeline project for a civilian nuclear deal. Instead, our government should remind Washington and the international community that multilateral energy agreements encourage responsible and efficient consumption and, in the long run, encourage investment and innovation in clean and renewable energy. The US should not aim to monopolise foreign investment in Pakistan’s energy sector, not should it stand in the way of regional energy resource cooperation.

Huma Yusuf, Dawn (Islamabad), April 4, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/the-newspaper/columnists/huma-yusuf-pipeline-politics-440

US DIKTAT ON IRAN PIPELINE NOT TO BE ENTERTAINED The Foreign Office said on Saturday Islamabad would not entertain pressure by Washington on its decision to have cooperation with Iran in the energy sector.

“We would like to have cooperation with Iran in all areas. If there are opportunities, Pakistan will pursue those. We have concluded the IP gas pipeline project with Iran. … This is our sovereign decision and the government of Pakistan will take decisions only in consonance with its own national interests,” Foreign Office spokesman Abdul Basit said at a media briefing.

36 IPRI Factfile

The remarks came on the eve of Prime Minister Yousuf Raza Gilani’s meeting with President Obama. The meeting precedes a nuclear security summit scheduled for April 12 and 13 in Washington.

The meeting is a follow-up to last month’s strategic dialogue and part of efforts to transform the transactional nature of Pakistan-US relationship to a partnership.

Last month the US counselled Pakistan against entering into a deal with Iran for building a multi-billion-dollar gas pipeline. “We do not think it is the right time for doing this kind of transaction with Iran,” US Assistant Secretary of State Robert Blake said recently.

He said Pakistan had been asked to seek alternatives because of a dispute over Iran’s nuclear programme.

The situation poses a complex test for Pakistan’s diplomacy as the country aspires to have a civilian nuclear energy package from the US while pursuing the gas pipeline project with Iran.

“Our country is facing energy deficit. We are exploring all possible avenues to overcome our energy problem,” the spokesman said. …

Baqir Sajjad Syed, Dawn (Islamabad), April 11, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/the-newspaper/front-page/19-us-diktat-on-iran-pipeline-not-to-be-entertained-fo-140-hh-01

IRAN TO COMPLETE PEACE PIPELINE Tehran is to start in early May the design and construction of the remaining part of the Iran-Pakistan gas pipeline on Iranian soil, a gas official says.

The Head of the National Iranian Gas Export Company told Shana newswire on Sunday that a consultant would be chosen in the near future for the remaining part of the pipeline, also known as the 'Peace Pipeline'.

We hope that the design of the pipeline will be completed before the current Iranian year ends on 21 March 2011, and the construction of the pipeline will begin during the same Iranian year," he said.

He stressed that Iran's gas will be delivered to Pakistan by March 2014, noting that only 250 km of the pipeline on Iranian side remains unconstructed.

Kasaeizadeh said that Russian and Chinese firms have shown interest in constructing the Pakistani part of the pipeline, noting that Islamabad has other options regarding its construction.


A gas sales contract between Iran and Pakistan was signed last June by the presidents of the two countries.

Around 1,100 kilometers of the pipeline would be built in Iran, while the remaining 1,000 kilometers would be installed in Pakistan.

Kasaeizadeh said in January that according to normal procedures, Iran is supposed to deliver the gas to the Iran-Pakistan border, and then Pakistan would be responsible for conveying the export to any potential customer.

Earlier, in September 2009, Kasaeizadeh mentioned that India also needs Iran's gas and that Tehran has no problem in signing gas deals with New Delhi.

India wants the delivery point of its gas imports from Iran to be on the Pakistan-India border.

The pipeline was originally proposed in 1995, but last year, after almost 13 years of negotiations India decided to step back.

Press TV, April 12, 2010, http://www.presstv.ir/detail.aspx?id=123086&sectionid=351020103

PAKISTAN, IRAN SIGN MAJOR GAS PIPELINE PACT The Iran-Pakistan (IP) gas pipeline sovereign guarantee agreement was signed on Friday [May 28, 2010].

The agreement was signed by National Iranian Oil Company Managing Director SR Kasaezadeh and Ministry of Petroleum and Natural Resources Joint Secretary Irshad Kaleemi.

Talking to the media after the signing ceremony, Petroleum and Natural Resources Minister Naveed Qamar said that the groundwork of the Iran-Pakistan Gas Pipeline Project would start soon, as the paper work had been completed today (Friday).

He said that the Gas Sale and Purchase Agreement (GSPA) between Pakistan and Iran was for the import of 750 million cubic feet daily (mmcfd) of natural gas with a provision to increase it to one billion cubic feet per day (bcfd).

“The imported gas volume was nearly 20 percent of Pakistan’s current gas production and the supply was for a contracted period of 25 years, renewable for another five years. All of the imported gas will be dedicated to the power sector,” the minister said.

Shah said the imported gas volume would support approximately 5,000 Megawatts (MW) of power generation and would result in

38 IPRI Factfile

significant annual savings compared to alternative fuels such as High Sulphur Furnace Oil (HSFO), Liquefied Natural Gas (LNG), and Coal.

“As a part of the conditions precedent (CP) to be completed by parties to make the GSPA effective, the Pakistan government was providing a ‘performance guarantee’ on behalf of the Inter State Gas Company. While all other CPs of the GSPA had been completed, the project was now ready to enter into its implementation phase. As per the current project implementation schedule, the first gas flow was targeted by the end of 2014,” he added.

The project will be funded through public-private partnership and the capital cost for the Pakistan section is estimated at $1.65 billion.

The minister added that the construction of the pipeline would also create job opportunities, vocational training and health facilities in the backward areas of Balochistan and Sindh.

While talking to Daily Times, Petroleum Secretary Kamran Lashari said that the usage of this gas would change the fuel mixture composition, which would result in a more affordable power tariff for electric power consumers.

He added that under the second phase, the country would also import 250mmcft gas per day for Balochistan. Lashari said it was time the bankable feasibility study was made and the route survey and front end engineering was conducted for laying the pipeline.

While talking to the media, the National Iranian Oil Company Managing director said that this project would enhance the bilateral relations between both countries.

Zeeshan Javaid, Daily Times (Lahore), May 29, 2010, http://www.dailytimes.com.pk/default.asp?page=2010\05\29\story_29-5-

2010_pg7_12

PAK-IRAN GAS PIPELINE The Pakistan-Iran gas pipeline is moving ahead despite all the opposition to it. On Friday a sovereign guarantee for the pipeline was formally signed in Islamabad, as well as the Gas Sale and Purchase Agreement between the two countries.

This means that the pipeline, which will start in Asalooyeh in south Iran, will go ahead without India, which was originally scheduled to be the terminus of the pipeline, and the main customer for the gas. However, it has backed out under American pressure, as well as


blandishments, which include the so-called civilian nuclear deal it made with the USA. The USA, to prevent the gas deal with Iran, has told Pakistan that it will look after its energy needs, but has done nothing practical. This has left Pakistan, facing a permanent energy shortfall, with no option but to pursue the Iranian gas deal. With the project to start with a 900-km pipeline between Asalooyeh and Iranshehr near the Pakistan border, it is scheduled for completion in four years, but the Iranians have assured Pakistani Petroleum Minister Syed Naveed Qamar that they will complete it in two and a half to three years, ahead of schedule.

However, even if the project comes online on schedule, it will still mean Pakistan’s present electricity shortage will be considerably eased, as Iranian gas goes to fuel turbines that would otherwise need fuel. The Iranian gas would go to the electricity sector, and thus local gas production would go for domestic use. The Petroleum Ministry sees considerable savings resulting from this, when compared with other projects, and thus the project is viable as it is. However, the project is still open to India’s joining, which would only require a pipeline to Pakistan, to connect India to the pipeline. Assuming India got permission from the USA, it would have to make a transit payment agreement with Pakistan, in addition to an agreement with Iran on the price of the gas.

It should be kept in mind, that while this project may well keep power projects operating, it does not add to the generation capacity of the country. For that, there is no substitute for large dams, such as the Kalabagh Dam project, which includes a large power generation capacity along with large water storage. It would be criminal neglect if Pakistan was to leave unexploited any of its hydro-electric capacity, and India, which has tried to sabotage the gas pipeline project, is already using this Pakistani neglect to claim excessive use along the Indus, in violation of the Indus Waters Treaty. In the process, Iran should also learn how unreliable India is.

Editorial, Nation (Islamabad), May 30, 2010, http://www.nation.com.pk/pakistan-news-newspaper-daily-english-

online/Opinions/Editorials/30-May-2010/PakIran-gas-pipeline

40 IPRI Factfile

IRAN TO APPROVE PAKISTAN GAS PIPELINE DEAL THIS WEEK

Iran hopes to finalise a deal this week for a much-delayed pipeline to export natural gas to Pakistan by 2015, an energy official said on Sunday.

"The $7-billion Iran-Pakistan gas pipeline contract will be finalised this week, and based on the approved time framework the export of gas to Pakistan will be launched by the end of 2015," said Hojjatollah Qanimifard, deputy director in charge of investment at the National Iranian Oil Company.

"In a meeting in Tehran on Tuesday (June 8), the final approval on pipeline by the NIOC board of directors will be delivered to Pakistani officials and their letter of guarantee will be received," he said in the comments on semi-official news agency ILNA.

The project is crucial for Pakistan to avert a growing energy crisis already causing severe electricity shortages in the country of about 170 million, at the same time as it confronts Islamist militancy.

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

Iran has the world's second-largest gas reserves after Russia. But sanctions by the West, political turmoil and construction delays have slowed its development as an exporter.

Dubbed the "peace pipeline," the project has been planned since the 1990s and originally would have extended from Pakistan to its old rival, India.

However, India has been reluctant to join the project given its long-running distrust of Pakistan, with which it has fought three wars since they achieved independence in 1947.

Under a deal signed in March, Pakistan will be allowed to charge a transit fee if the proposed pipeline is eventually extended to India.

The United States has tried to discourage India and Pakistan from any deal with Iran because of Tehran’s uranium enrichment activities and suspicions it wants to build nuclear weapons.

Iran, whose economy has been hit by U.N. sanctions over the dispute, denies any such ambitions.

Iranian media reported on Sunday that the oil minister had ordered an end to talks with Anglo-Dutch Shell (RDSa.L) and Spain’s Repsol (REP.MC) over the development of South Pars after the majors failed to meet ultimatums on their involvement.


Iran has the world's second largest gas reserves but has struggled for years to develop its oil and gas reserves.

Iran says it already makes $18 billion annually from production at 10 phases of South Pars but that income could leap to at least $96 billion a year when all phases are completed. China's National Petroleum Corporation is developing part of it.

The Islamic republic says it needs around $25 billion a year in oil and gas industry investment.

Hossein Noghrekar Shirazi, deputy oil minister in charge of international affairs, told Abrar daily on Sunday Iran's gas production capacity of 600 million cubic metres per day could rise to 1.1 billion cubic metres by 2015.

Reuters, June 6, 2010, http://www.reuters.com/article/idUSKAL63939220100606

IRAN-PAKISTAN GAS PIPELINE PROJECT INKED

Pakistan and Iran on Sunday [June 13, 2010] finalized US $ 7.5 billion gas project dubbed as a peace pipeline to start supply of natural gas to the former from 2014.

The landmark agreement was signed by Iran's deputy oil minister Javad Ouji and Pakistani delegation including among other officials Secretary Ministry of Petroleum and Natural Resources Kamran Lashari and Managing Director Inter-State Gas Company Naeem Sharafat in Tehran.

"Now the project has entered into implementation phase and there are no further formalities left in way" Naeem Sharafat said.

He said the IP project was another testimony of the long historic and cordial relations between Pakistan and Iran," the official said.

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

Pakistan has to construct about 700-km pipeline from the border, traversing along the Makran Coastal Highway to connect with its existing gas transmission network at Nawabshah. A 42-inch diameter pipeline is planned to be built, which is estimated to cost US$ 1.65 billion.

The project is crucial for Pakistan to avert a growing energy crisis, already causing severe electricity shortages in the country and the project would help generate around 5,000 megawatts of electricity.

42 IPRI Factfile

Under the gas sale and purchase agreement (GSPA), Pakistan will import about 750 million cubic feet a day (mmcfd) with a provision to increase it to one billion cubic feet a day (bcfd).

The volume of imported gas will be about 20 per cent of Pakistan's current gas production and the agreement is for a period of 25 years, renewable for another five years.

Iran has the world's second largest gas reserves after Russia but has struggled for years to develop its oil and gas resources.

Sanctions by the West, political turmoil and construction delays have slowed Iran's development as an exporter.

Iran state television said the pipeline was 1,000 km (620 miles) long, with about 907 km of it already built.

Pakistan-India (IPI) gas pipeline project was conceived in early nineties. However, the project could not take off for various reasons, including the new gas discoveries in Pakistan of Miano, Sawan and Zamzama, Indian concerns on pipeline security and Iranian indecisiveness on certain issues.

Pakistan would be allowed under an agreement signed in March to charge a transit fee if the proposed pipeline is eventually extended to India.

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.

News International (Rawalpindi), June 13, 2010, http://www.thenews.com.pk/updates.asp?id=106575

IRAN BEGINS WORK ON GAS PIPELINE TODAY

Iran and Pakistan formally signed on Sunday [June 13, 2010] a $7.5 billion gas deal, dubbed as a peace pipeline, for supply of natural gas to Pakistan from 2014.

Under the deal, Iran will export 21.5 million cubic meters (760 million cubic feet) per day of gas to Pakistan.

The signing of the export deal marks a victory-of-sorts for Iran, which saw the UN Security Council last week pass its fourth round of sanctions against the Islamic Republic over its nuclear programme.

“This is a happy day,” Iran’s Deputy Oil Minister Javad Ouji told reporters at the contract signing ceremony.


“After decades of negotiations, we are witnessing today the execution of the agreement... to export more than 21 million cubic metres of natural gas daily from 2014 to Pakistan,” he added.

Under the terms of the contract, Iran would be able to use Pakistani territory to transit gas to a third country, Mr Ouji said.

He said that from Monday, Iran would start building a 300-kilometre leg of the pipeline from Iranshahr to the Pakistani border, through the Iranian port of Chabahar.

Iran has already constructed 907 kilometres of the pipeline between Asalooyeh, in southern Iran, and Iranshahr, which will carry natural gas from Iran’s giant South Pars field.

Kamran Lashari, secretary to the petroleum ministry, said that Islamabad would conduct a one-year feasibility study for building its section of the pipeline.

“It will then take three years for constructing the 700-kilometre pipeline from the Iranian border to Nawabshah,” he added. Mr Ouji said that Iran currently produced 600 million cubic metres of natural gas, of which 430 to 440 million cubic metres was consumed domestically.

Iran plans to raise output to 900 million cubic metres over the next three years with the expansion of South Pars and hopes to further hike it to 1,100 million cubic metres by 2015.

The project is crucial for Pakistan to avert a growing energy crisis, already causing severe electricity shortages. The project would help generate around 5,000 megawatts of electricity.

The volume of imported gas will be about 20 per cent of Pakistan’s current gas production and the agreement is for a period of 25 years, renewable for another five years.

Iran’s Oil Minister Masoud Mirkazemi said that final approval of the gas export contract would lead to a calm environment for providing energy in the region.

The pipeline project was initially expected to include India. But New Delhi opted out of the deal, in part over security concerns and because of transit fees through Pakistan.

Under a deal signed in March, Pakistan will be allowed to charge a transit fee if the proposed pipeline is eventually extended to India

Earlier last week, Iran started work on a $1.58 billion pipeline which would bring gas to Turkey, with the aim of distribution to

44 IPRI Factfile

Europe. Dawn (Islamabad), June 14, 2010,

http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-newspaper/front-page/iran-begins-work-on-gas-pipeline-today-

460

PAKISTAN SEALS PIPELINE DEAL WITH IRAN Iran has finalized a US$7 billion gas pipeline deal to export natural gas to Pakistan. The two countries on Sunday formally signed an export contract that commits the Islamic republic to supplying its eastern neighbor with natural gas from 2014.

The Iran-Pakistan (IP) pipeline, which has been talked about for 17 years, will connect Iran's South Pars gas field with Pakistan's southern Balochistan and Sindh provinces and will be crucial in Pakistan's attempts to ease countrywide electricity shortages.

The deal was signed days after a UN Security Council voted to tighten sanctions against Iran, but Islamabad believes that these will not affect the pipeline project.

“As far as our ... project is concerned, it is a commercial agreement to meet our energy deficit and beyond the purview of this resolution,” Dawn newspaper reported Abdul Basit, Foreign Office spokesman as saying.

The United States has sought to dissuade Pakistan and India, which has also considered joining the project, because of Tehran's nuclear ambitions.

“We have advised Pakistan to seek other alternatives,” Dawn quoted Robert Blake, the US Assistant Secretary of State for South and Central Asian affairs as saying in April. “We do not think it is the right time for doing this kind of transaction (building the pipeline) with Iran.”

Iran, which has the world’s second-largest gas reserves after Russia, needs around $25 billion a year in oil and gas industry investment, according to Reuters. Its gas production capacity of 600 million cubic meters per day is expected to rise to 1.1 billion cubic meters by 2015, but sanctions by the West, political turmoil and construction delays have slowed its development as an exporter.

US Defense Secretary Robert Gates reportedly said before the UN sanctions vote last week that the UN resolution could clear a way for individual states and the European Union to block foreign firms


expanding Tehran’s oil and gas exports and impose other curbs on business activity.

The pipeline will provide gas to the power sector to generate about 5,000 megawatts of electricity. Some analysts say it will not be possible for the government to provide the fuel to domestic consumers due to its high price, which was one reason behind India's withdrawal from the project.

Pakistan’s Deputy Energy Minister Kamran Lashari, who was present at the signing ceremony, said Islamabad will conduct a one-year feasibility study for building its section of the pipeline, local media reported. Iran has built 907 kilometers of the pipeline between Asalooyeh, in southern Iran, and Iranshahr. Iran’s Deputy Oil Minister Javad Ouji reportedly said that Iran this week will start building the next 300km stretch to the Pakistani border, through the Iranian port of Chabahar. Pakistan will take three years to build the 700km link from the Iranian border to Nawabshah, in Sindh province.

“This is a happy day,” Ouji said at the contract signing ceremony in Tehran, Agence France-Press reported. “After decades of negotiations, we are witnessing today the execution of the agreement ... to export more than 21 million cubic meters of natural gas daily from 2014 to Pakistan.”

On May 28, the two countries signed the sovereign guarantee agreement, which makes effective made Gas Sales Purchase Agreement (GSPA) signed by the countries last year in Istanbul. Under the GSPA, Iran agreed to export 750 million cubic feet per day (mmcfd) with a provision to increase it to one billion cubic feet a day (bcfd) at the rate equal to 78% of crude oil for the next 25 years.

The pipeline was originally planned to extend from Pakistan to India in 1993. India walked away from the project last year, but has kept its options open to join at a later stage. After India's withdrawal, Beijing has shown interest in building a pipeline through Pakistan carrying Iranian gas to China. China's National Petroleum Corporation is already involved in developing the South Pars field.

Pakistan's demand for gas, which is the primary fuel helping run the economy, has surged to 4.7 billion cubic feet a day (bcfd) against actual supply of 3.6 bcfd. The country's natural gas reserves, which meet over 50% of its requirement for energy, have depleted rapidly in recent years with few hydrocarbon discoveries and decline in production from

46 IPRI Factfile

its largest Sui gas field in Balochistan.

Syed Fazl-e-Haider, Asia Times (Hong Kong), June 15, 2010, http://www.atimes.com/atimes/South_Asia/LF15Df02.html

IRAN, PAKISTAN GAS DEAL BOOSTS IRAN

This week, Iran signed a major long-term gas export contract with Pakistan and portrayed itself as a reliable supplier for its gas-hungry neighbors in an apparent response to Washington’s intense diplomatic efforts to isolate it over its uranium-enrichment program. Despite the boasting though, the Islamic Republic’s ability to become a significant gas exporter will be increasingly constrained by the new set of sanctions.

Under the $7.5 billion contract, Iran, with the world’s second-largest gas reserves (Russia’s reserves are larger), will sell Pakistan 750 million cubic feet per day for 25 years starting in 2014, once the Pakistani portion of the pipeline is completed. The volume can be increased to 1 bcf/d and the contract can be extended for five additional years.

Tehran has been offering its neighbors gas for years, from Turkey, Europe and its Arab neighbors in the Persian Gulf, to China as liquefied natural gas, but differences over pricing, concerns over Iran’s ability to meet demand, as well as Washington’s pressure over the past years, have derailed deals one after another.

The timing of the signing of the long-awaited contract with Pakistan, only weeks after the UN Security Council agreed to a fourth set of sanctions, is significant. Pakistan has brushed away criticism over the deal, while Iranian officials have used it to depict the country as immune to the new measures. Iran will “play a big role in meeting of the energy security” of the region, Oil Minister Masoud Mirkazemi was quoted:

“Pakistan is an old project. One of the reasons to reemphasize now is to create the impression they are not isolated and projects are going ahead as planned,” said Jonathan Stern, director of gas research of the Oxford Institute for Energy Studies. “The crucial thing now is what impact the international sanctions have on Iran’s ability to raise money,” Stern said. “It doesn’t look confidence inspiring.”

Iran current exports gas to Turkey, but it imports more from Turkmenistan and Azerbaijan to supply its disconnect northern region, a trend that will continue at least for this year. Its gas production in 2009 reached 12.7 bcf/d, a 13% increase from the year before. But all of that


went to meet local demand, which increased in the same period almost 11%, according to the 2010 BP Statistical Review.

The pipeline to Pakistan, which was originally designed to reach India, was dubbed the Peace Pipeline, and involved building a 1,725-mile duct from Iran’s huge South Pars gas field, across Pakistan and into northern India, with both countries splitting 2.12 bcf/d.

India, which was concerned about the pipeline’s security in the territory of its longtime foe, withdrew after signing a nuclear deal with the US. Right up to the end, the Obama administration also offered Islamabad alternatives to Iranian gas imports, including help in building a re-gasification terminal to buy liquefied natural gas. But Pakistan’s soaring gas demand and power shortages weighed more. Officials there say the Iranian gas will power up to 5,000 megawatts of electricity generation capacity.

Only about 185 miles of the 745-mile gas pipeline in Iranian territory remain to be built. Additional production from South Pars which is already in advanced stages of development should allow the Iranians to meet the Pakistani demand. But the commitment, along with uncertainty over whether Iran will be able to decrease domestic demand, make any other major export commitments unlikely in the short term, especially as sanctions limit the ability to finance the remaining projects as Western powers target Iranian banks. Iranian banks are resorting to issuing euro bonds worth about $1.2 billion to jumpstart upstream projects.

“In theory, it’s feasible to do. But with politics it’s hard to tell,” said Manouchehr Takin, senior upstream analyst of the Centre for Global Energy Studies. “Iran has had difficulty buying and paying in international markets. The US has gone out of its way to twist the arms of oil companies.”

South Pars has some 450 tcf of gas reserves and currently produces around 7 bcf/d. Iran plans to develop the field in at least 24 phases to eventually reach around 30 bcf/d, or 81 percent of total production by the end of the country’s five-year master plan ending 2015. Meanwhile, officials expect local demand to drop 30% in the same period as a result of a subsidy reform plan already under way. But few analysts believe Iran, which is notorious for making empty promises in its energy sector, will be able to meet the production target, especially as financing becomes increasingly hard. “History is littered with Iranian contracts and

48 IPRI Factfile

deals to supply gas and most has not happened. The ones that have ultimately haven’t been a great success,” Stern said.

Western companies have all but frozen their operations as international pressure has mounted over Iran’s nuclear plans. Asian companies have picked up much of the work, but analysts doubt foreign companies will be willing to sink more money into Iran. “Chinese and Indians are there, but if you look at whole picture has been another reason of development of South Pars especially has been delayed,” Takin said.

Indeed, Iran’s Oil Ministry this week signed the six remaining phases of South Pars with Iranian companies, illustrating the difficulty of attracting more foreign expertise. Additionally, there are technological barriers, especially in regards to building the LNG facilities.

“In terms of gas volume, it’s capable of producing required volume to export. It’s more a case of when these projects are developed. In my view, implementation will not happen in the five years,” said Colin Lothian, Middle East upstream analyst with Wood Mackenzie, an energy consultancy.

Andres Cala, Energy Tribune (Houston), June 16, 2010, http://www.energytribune.com/articles.cfm/4367/Iran-Pakistan-Gas-Deal-

Boosts-Iran

US SAYS NEW SANCTIONS ON IRAN COULD IMPACT

PAKISTAN Pakistan should be wary of committing to an Iran-Pakistan natural gas pipeline because anticipated US sanctions on Iran could hit Pakistani companies, the US special representative to the region said on Sunday.

While sympathetic to Pakistan’s energy needs, the US special representative to the region, Richard Holbrooke, told reporters that new legislation, which targets Iran’s energy sector, is being drafted in the US Congress and that Pakistan should “wait and see”.

“Pakistan has an obvious, major energy problem and we are sympathetic to that, but in regards to a specific project, legislation is being prepared that may apply to the project,” he said, referring to the pipeline. “We caution the Pakistanis not to over-commit themselves until we know the legislation.”


Pakistan is plagued by chronic electricity shortages that have led to mass demonstrations and battered the politically shaky government of President Asif Ali Zardari.

US Senator Joseph Lieberman said last week he expects Congress to finish shortly legislation tightening US sanctions on Iran that will include provisions affecting the supply of refined petroleum products to Tehran, and add to sanctions on its financial sector.

Lieberman, an independent, is a member of a House-Senate committee of negotiators working on final details of the bill and said it could pass by July 4.

The $7.6 billion natural gas pipeline deal, signed in March, doesn't directly deal with refined petroleum products and was hailed in both Iran and Pakistan as highly beneficial.

The US has so far been muted in its criticism of the deal, balancing its need to support Pakistan, a vital but unstable ally in the global war against al Qaeda, with its desire to isolate Iran.

But the legislation could be comprehensive enough to have major implications for Pakistani companies, Holbrooke said.

“We caution Pakistan to wait and see what the legislation is.” …

News International (Rawalpindi), June 20, 2010, http://www.thenews.com.pk/updates.asp?id=107017

PAKISTAN FM VOWS TO IMPLEMENT IRAN GAS PIPELINE

PROJECT DESPITE US WARNING Pakistan’s Foreign Minister Shah Mehmood Qureshi Sunday defended the 7.5 billion-US dollar gas pipeline with Iran and said Islamabad will take the project forward despite sanctions on Iran.

Qureshi's comments came hours after US Special envoy for Pakistan and Afghanistan Richard Holbrooke warned Pakistan against the pipeline intended to bring the much-needed natural gas to the energy starved country.

Pakistan and Iran formally signed the deal in Tehran on June 13, under which Iran will supply Pakistan with natural gas from mid- 2014.

“The gas pipeline project with Iran is in Pakistan's interests,” the Pakistani Foreign Minister told a news conference in the city of Multan in Punjab.

50 IPRI Factfile

Qureshi said that Pakistani experts are of the opinion that sanctions on Iran will not affect gas pipeline project as it is a bilateral agreement and both countries have already finalized the deal.

He said that gas pipeline deal with Iran will not violate international laws, adding Pakistan will focus on its interests without violating international laws.

The Pakistani Foreign Minister said that the visiting U.S envoy Richard Holbrooke also remained silent when he was asked about the Iran gas pipeline deal on Saturday.

He said sanctions on Iran have not been imposed for the first time and that the Islamic republic had also been slapped with curbs three times before. He added that it is fourth time that Iran has been sanctioned, adding that if these sanctions have been imposed under chapter 7 of the UN then all UN members will apply and Pakistan will respect it like other countries.

The pipeline was initially mooted to carry gas from Iran to Pakistan and on to India. India withdrew from negotiations last year after signing a nuclear deal with the United States, but has kept open the option of rejoining the project at a later stage.

Iran will export more than 21 million cubic metres (742 million cubic feet) of natural gas daily, according to the deal.

Meanwhile Iranian ambassador in Islamabad Mash' Allah Shakeri has said the multi-billion Iran gas pipeline has enhanced Pakistan's strategic importance, particularly in relation to India.

“In addition to the added economic value of billions of dollars, the Iran gas pipeline agreement has boosted the strategic value of Pakistan in the region. If there is any third country recipient, they have to recognize that Pakistan is going to provide a peaceful passage,” Shakeri told Express Television in an interview.

Mu Xuequan, English News (Beijing), June 20, 2010, http://news.xinhuanet.com/english2010/world/2010-06/20/c_13359663.htm

WILL THE REAL MR. HOLBROOKE STAND UP: CONFUSION

REIGNS OVER US STANCE ON GAS PIPELINE It was quite surprising to hear Mr Holbrooke tell the journalists at Islamabad on Saturday that the US had no objection to Pakistan getting natural gas from Iran since it was facing an acute energy crisis. The surprise news – a pleasant surprise for the load-shedding-beaten people


here – however, called for serious thinking about what could possibly have induced Washington to drop its opposition to the Iran-Pakistan-India gas pipeline project. After all, neither the fact of the power shortage, that has been crippling the whole gamut of our life for nearly three years, was hidden from it nor has the reason of its opposition to the pipeline project vanished.

Islamabad has been under intense pressure not to go ahead with it, and at the same time was repeatedly rebuffed when it tried to secure a nuclear deal on the pattern of that which was concluded with India. The US only recently managed to have stiffer sanctions passed by the UN Security Council against Tehran for its imagined drive to develop nuclear weapons. Logically, its pressure should have intensified!

But, as most political analyst suspected, there was something ‘more than meets the eye’ and the surprise did not last long, leaving a bad taste in the mouth; the very next day Mr Holbrooke recanted the earlier statement, saying, “We cautioned the Pakistanis not to over-commit themselves until we know the legislation (that was under preparation in the US and that it could be comprehensive).” One really wonders what prevented him earlier to withhold that information and misinform the media by stating that the US had no objection against the gas pipeline project. He could also have put the questioner in the picture about this “comprehensive” legislation being drafted. His expression of sympathy for Pakistan, therefore, sounds utterly hollow. He said, “Pakistan has an obvious major energy problem. We are very sympathetic to it.”

Foreign Minister Qureshi rightly and quickly rejected the US concern, while talking to the media at Multan airport. He maintained that the UN sanctions that Islamabad respected would not harm the deal. The US must understand that the pipeline could serve as the lifeline for the country and save it from the darkening prospects of economic ruin and social chaos. Pakistan must stick to the stand taken by Mr Qureshi. The US should be told in unmistakable terms that Pakistan would go ahead with the project under all circumstances and pull out of the war on terror if the US does not withdraw its objection, something it should have done long ago, if it had made the mistake of joining up with the ungrateful US. The war has cost us dearly not only in terms of the loss of life and property but also causing all-pervasive insecurity. The US must give up its present policy of taking illogical stands; otherwise, it would do

52 IPRI Factfile

its interests irreparable harm.

Dawn (Islamabad), June 21, 2010, http://thedawn.com.pk/2010/06/21/will-the-real-mr-holbrooke-stand-up-

confusion-reigns-us-stance-on-gas-pipeline/

US BLOWS HOT, BLOWS COLD OVER PAK-IRAN GAS PIPELINE

The US is apparently using the Pak-Iran gas pipeline deal also as leverage against both Pakistan and Iran and part of its carrot and stick policy. Mr. Holbrooke, President Obama’s special envoy to the region, who is currently visiting Islamabad, told journalists on Saturday that the US had no objection to Pakistan getting natural gas from Iran since it was facing an acute energy crisis. The observation was received with mixed feelings since the energy-starved people of Pakistan’s predicament has been no secret nor has this affliction struck Pakistanis suddenly; then how come the US, which has been indicating its disapproval of the deal and has even managed to convince its new paramour in the region, India to renege on the deal, now express “no objection”. Indeed a number of Pakistanis were relieved at the US tacit approval of the deal, but the thinking ones and those with a penchant for the conspiracy theory were wondering what could possibly have induced Washington to drop its opposition to the Iran-Pakistan-India gas pipeline project. After all, neither the fact of the power shortage, that has been crippling the whole gamut of our life for nearly three years, was hidden from it nor has the reason of its opposition to the pipeline project vanished. The Daily Mail still remembers the intense arm twisting and wrangling on the part of USA over the deal and in return, the snubs it received from the US, whenever Pakistan raised the question of a civil nuclear energy deal like the 123 deal between US and India. Pakistan’s requests were rebuffed by USA, sometimes by raising the spectre of Dr. Abdul Qadeer Khan’s network and others by flogging the dead horse of nuclear proliferation.

However, the pleasure and satisfaction of the sanguine group in Pakistan was short lived as the very next day, Sunday, Richard Holbrooke flip-flopped and reminded Pakistan that Iran was under sanctions and this could affect the Pak-Iran gas pipeline deal. The Daily Mail is wondering what changed overnight for Mr. Holbrooke to recant his earlier statement. Did he receive fresh “advice” from Washington or did sweetheart New Delhi whisper sweet nothings in Mr. Holbrooke’s


ear for pressurizing Pakistan. Pakistanis too are an emotional bunch. In one moment they are at the top of the world that “US has no objections” and the next their hopes are dashed by Mr. Holbrooke that “We cautioned the Pakistanis not to over-commit themselves until we know the legislation (that was under preparation in the US and that it could be comprehensive).”

The Daily Mail believes that pragmatism should have prevailed because the sanctions against Iran were imposed prior to Mr. Holbrooke’s visit and if anything, the sanctions would have intensified the pressure on both Pakistan and Iran. Richard Holbrooke of course is a suave diplomat and does not get stabbed by pangs of conscience that one day he raises the hopes of Pakistanis and the next he dashes them. He does it ever so deftly that both Machiavelli and Chanakya would have been proud of their able disciple.

The Daily Mail is appreciative of Pakistan’s foreign office spokesman’s statement that “the UN resolution does not stop Pakistan from carrying on with the gas pipeline project because both China and Russia ensured that Iran’s energy sector, including gas and oil, is not targeted when UN resolution 1929 was passed by the UNSC. The scope of the resolution is limited.” Spokesman Abdul Basit also was being diplomatic, while setting aside Holbrook’s twisting remarks said that the gas deal would not be affected and Pakistan would go ahead with the deal to meet its energy needs since the oil and gas sectors were not a part of UN sanction over Iran. However, he said that the sanctions imposed on Iran were imposed by the Security Council, and that Pakistan would respect the sanctions. Of course the Pak-Iran gas pipeline project has become a new whip in the hands of the US to lash both Iran and Pakistan if the need arises. Iran, which has so far borne all pressures gracefully may not be affected, but it is Pakistan that has to show spine.

Editorial, Daily Mail (Islamabad), June 22, 2010, http://dailymailnews.com/0610/22/Editorial_Column/DMEditorial.php#1

PAKISTAN NOT BOUND BY US SANCTIONS AGAINST IRAN: GILANI

Pakistan will go ahead with a plan to import natural gas from Iran even if the US levies additional sanctions on the country, Prime Minister Yousuf Raza Gilani said.

54 IPRI Factfile

Gilani's comments Tuesday come two days after the US special envoy to Pakistan, Richard Holbrooke, cautioned Pakistan not to ''over commit'' itself to the deal because it could run afoul of new sanctions against Iran.

The deal has been a constant source of tension between the two countries, with Pakistan arguing that it is vital to its ability to cope with an energy crisis and the US stressing that it would undercut international pressure on Iran over its nuclear program.

Gilani said Pakistan would reconsider the deal if it violated UN sanctions, but the country was ''not bound to follow'' unilateral US measures. He said media reports that quoted him as saying that Pakistan would heed Holbrooke's warning were incorrect.

The UN has levied four sets of sanctions against Iran for failing to suspend uranium enrichment, a process that can produce fuel for a nuclear weapon. The latest set of UN sanctions was approved earlier this month.

The US has also applied a number of unilateral sanctions against Iran, and Congress is currently finalising a new set largely aimed at the country's petroleum industry. Both houses have passed versions of the sanctions and are working to reconcile their differences.

Pakistan and Iran finalised the gas deal earlier this month. Under the contract, Iran will export 760 million cubic feet of gas per day to Pakistan through a new pipeline beginning in 2014. The construction of the pipeline is estimated to cost some $7 billion.

While US officials have expressed opposition to the Pakistan-Iran gas pipeline deal, the issue is complicated by Washington's reliance on Pakistan's cooperation to fight al-Qaeda and the Taliban.

The US also acknowledges that Pakistan faces a severe energy crisis and has made aid to the energy sector one of its top development priorities. Electricity shortages in Pakistan cause rolling blackouts that affect businesses and intensify suffering during the hot summer months.

Dawn (Islamabad), June 22, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/news/pakistan/04-gilani-iran-deal-us-sanctions-qs-12

IP PIPELINE The prime minister is supposed to dispel confusion, not create it. But for a 24-hour period between Sunday and Monday, Prime Minister Gilani


caused many to scratch their heads after media reports attributed to him a pledge to abide by US sanctions against Iran, in contradiction of Pakistan’s traditional stance of adhering to only UN-imposed sanctions. Yesterday Mr Gilani rejected the media reports and reiterated Pakistan’s stance of adhering to only UN-imposed sanctions, but what it has done is to bring into focus the difficult triangle of US-Pakistan-Iran relations.

At this point, it would be helpful to revisit the economic and technical basics of the Iran-Pakistan pipeline and the first principles of geopolitics. Pakistan is a country on the brink of an energy crisis: the resources that we are currently able to tap may not last another decade. There are local options, the ‘new’ ones such as figuring out how to tap the potential of Thar coal and Kohat gas and building more dams, and ‘old’ ones such as extracting more from wells that have been capped. The problem is there is no direction from the government on energy planning. Even if there was such planning, at this late stage stopgap measures would be needed to plug the energy deficit.

Enter options such as the Iran-Pakistan pipeline. The cost and technical details are massively complex, but some of the ‘conventional wisdom’ is questionable. For example, will it really cost in the range of $7bn for Pakistan to build its share of the pipeline? That is a critical question because Pakistan is unlikely to get any foreign financing for the pipeline from the IFIs or cheap credit from international credit markets. Also, is the purchase price agreed unjustifiably high or should Pakistan view the agreement from the prism of current options, and the cost of not doing anything on the energy front?

Getting answers to these questions is where Mr Gilani’s energies should be directed, rather that speculating about sanctions. American disapproval for the pipeline is clear and the US will continue to flex its diplomatic muscle, but thus far it has avoided presenting Pakistan with a fait accompli. Potential American sanctions against Iran have not been linked to Kerry-Lugar aid nor do they specifically bar projects such as the IP pipeline. And if the American side does try and squeeze Pakistan diplomatically, Pakistan’s response should be: how exactly will an energy crisis here help the fight against militancy?

Editorial, Dawn (Islamabad), June 23, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-library/dawn/the-

newspaper/editorial/21-ip-pipeline-360-sk-01

56 IPRI Factfile

YIELDING TO PRESSURE One day US representative Richard Holbrooke makes a public statement before the media that his country has no objection to the Iranian gas pipeline project; the very next day, he backtracks, very likely on being upbraided by Washington, and qualifies it with the remark that the US was drafting a legislation against Iran, which might jeopardise it. Then, while at Multan, Foreign Minister Shah Mahmood Qureshi sharply reacts by saying, “we have to look after our interests”. He was confident that the project did not come under the purview of the UN sanctions that, in any case, Pakistan would follow, giving the clear impression that it has taken the decision to go ahead, whatever the American law might say. The nation, not only seething with anger at the government’s obsequious attitude to the US but also under stress for a long list of worries and desperately wanting to get rid of the agony of load-shedding, was elated at this posture, which reflected the need to serve the national interest and befitted the behaviour of a sovereign state.

Sadly, however, that feeling was not to last long. Soon afterwards, the official view took a sharp turn, and a tame acceptance of the US pressure became evident. All that talk of fiercely preserving our national interest and sovereign right in the conduct of relations with any country and the nation’s euphoria that at last Pakistan was coming into its own, abruptly ended as Prime Minister Yousuf Raza Gilani told newsmen at Garhi Khuda Bux that Pakistan would abide by the American sanctions i.e. as stipulated in the legislation on the anvil in the US. Blatantly denying the stark reality that has, of late, become characteristic of Prime Minister’s utterances, he maintained “we will not act under anyone’s dictation.”

The gas pipeline from Iran is a test case of the government’s attitude towards its core interests, and, at the same time, of Washington’s repeated commitment of abiding friendship with Pakistan. Refusal to help solve the Kashmir dispute; going out of the way to favour India with a nuclear deal while denying a ‘Non-NATO ally’ with the same privilege; coalescing with India to create trouble for Pakistan in FATA and Balochistan; baselessly accusing Pakistan of soft-pedalling on terrorists; pressurising it to give up the idea of receiving the natural gas from Iran; and, at the same time, creating hurdles to the Pak-China peaceful nuclear understanding - these American gestures should have convinced our present rulers that Pakistan is being systematically reduced to a client


state. We need to redirect our compass to know from where genuine friendship and understanding beckons. We have made thoughtless sacrifices to curry favour with a phoney friend; it is time to make a move towards genuine friends, with Beijing heading the list that also includes several Muslim and other states.

Editorial, Nation (Islamabad), June 23, 2010, http://www.nation.com.pk/pakistan-news-newspaper-daily-english-

online/Opinions/Editorials/23-Jun-2010/Yielding-to-pressure

PAKISTAN AND IRAN REITERATE COMMITMENT TO EXECUTE

IRAN-PAKISTAN POWER PROJECTS Pakistan and Iran on Wednesday reiterated their commitment to execute the Iran-Pakistan (IP) gas pipeline and power trade projects with the remarks that both projects are in the best interests of both brotherly countries. Pakistan is repeating its stance that it will not back out from the gas pipeline project despite pressure from Washington, which is engaged in strategic dialogue with Islamabad.

Official sources confirmed that Iranian Ambassador to Pakistan, Mashallah Shakeri, and Minister for Water and Power, Pervaiz Ashraf, discussed progress on the two projects at a meeting in the Parliament House. The issues pertaining to import of 1000 MW power from Iran to Pakistan and enhancement in power from 35 MW to 100 MW for Gwadar came under discussion during the meeting. According to sources, some issues are unresolved so far with regard to import of 1000 MW electricity.

The Minister for Water and Power, along with a team, will visit Tehran in August to resolve the issues with the Iranian leadership. After the visit of Pervaiz Ashraf, an official delegation, comprising technical experts, will reach Tehran to discuss the technical aspects of the project, including tariff and cost. This would be reciprocated by the Iranian side. National Engineering Pakistan (Nespak) has already finalised feasibility study report of the project, whereas Iran is yet to complete its work.

The Iranian Ambassador briefed the Minister on the recent developments on import of power project and informed him about the current status of transmission line from Iran to Gwadar. Both the Minister and the Ambassador agreed to further expedite the project.

They also agreed that delegation of technical experts from both sides would visit each other's country. The Ambassador stated that Iran is

58 IPRI Factfile

also keen to establish Iran-Pakistan-Turkey rail link. The proposed rail project will further boost bilateral relations with Iran. The Minister replied that Pakistan would fully support the project, as it would enhance regional co-operation.

Mushtaq Ghumman, Business Recorder, June 24, 2010, http://brecorder.com/index.php?id=1073069&currPageNo=1&query=

&search=&term=&supDate=

UK SAYS IRAN GAS PIPELINE PAKISTAN’S

INTERNAL MATTER Iran continued to dominate the political and diplomatic scene on Wednesday as Pakistan cautioned British Foreign Secretary William Hague that sanctions against the Gulf country beyond the ones mandated by the United Nations could have serious repercussions for Afghanistan and the Middle East.

The warning, Dawn has learnt, was conveyed by Pakistani diplomats during their talks with Mr Hague, who is in Pakistan on his first visit as foreign secretary.

According to Foreign Office sources, a significant part of the talks focussed on the latest UN sanctions on Iran and the subsequent efforts by the US and EU to take punitive measures against Tehran’s oil and gas sector.

Pakistan had on June 14 finalised a $7.6 billion gas pipeline deal with Iran, which is considered crucial for averting the energy crisis Pakistan is currently confronting. “Mr Hague was told that the US and EU sanctions could prove counter-productive and may force Iran to react,” a senior foreign ministry official informed Dawn.

Pakistan fears that a cornered Iran could affect the situation in Middle East and the peace and reconciliation efforts in Afghanistan.

According to the official, Mr Hague patiently listened to the Pakistani point of view.

Iran also figured at the press conference which followed the talks, though the guarded remarks of the British foreign secretary did not indicate that he had been won over by the persuasions of the Pakistan officials.

At the media briefing, which Mr Hague addressed with his Pakistani counterpart Shah Mehmood Qureshi, he reiterated that Britain


supported “the additional measures within the EU to increase peaceful and legitimate pressure on Iran over its nuclear programme”.

His words merely offered the reassurance that Britain would not support use of force against Iran, in case anyone in the audience feared another military adventure by the West.

The only consolation that Mr Hague was willing to offer was to reiterate what US Special Representative for Pakistan and Afghanistan Richard Holbrooke had said days earlier that the pipeline was Islamabad’s internal matter.

Mr Hague, too, clarified that his country would not interfere in the “sovereign decision of Pakistan (on the gas pipeline project)”.

Diplomacy dominated the mood during the press conference as Mr Qureshi also weighed his words carefully while speaking on the issue.

According to him, the Iran-Pakistan pipeline was one of the options (for addressing the country’s energy crisis) that was “doable and made perfect economic sense”, though he added that Pakistan, being a responsible country, would fulfil its international obligations. … Mr Hague also met PML-N chief Mian Nawaz Sharif.

Baqir Sajjad Syed Dawn (Islamabad), June 24, 2010, http://www.dawn.com/wps/wcm/connect/dawn-content-

library/dawn/news/pakistan/04-qureshi-hague-bilateral-ties-qs-13

IRAN-PAK GAS PIPELINE TO STRENGTHEN RELATIONS The Iran-Pakistan gas pipeline project will bring industrial revolution in both the countries, said Iranian Ambassador to Pakistan Mashallah Shakri on Saturday. “I think this mega project will be helpful and beneficial for both the neighbouring countries,” he said.

Mashallah Shakri said Iran would provide 21 million cubic meter gas, which will be enough to meet the energy needs of Pakistan. “We know Pakistan is facing energy crisis and this project would facilitate the country to overcome the issue,” he added.

He said that the project would also create a peaceful atmosphere in the region and also promote people to people contact, social contract, tourism and economy of both the nations, he maintained.

Shakri said Iran and Pakistan enjoy good relations and Iran is the first country, which internationally recognized Pakistan since its formation and Pakistan is also the first country that supported Iranian

60 IPRI Factfile

revolution.

Daily Times (Lahore), June 27, 2010, http://www.dailytimes.com.pk/default.asp?page=2010\06\27\story_27-6-

2010_pg5_6

PIPELINE TO TRANSFORM PAKISTAN INTO ASIAN TIGER

Peace pipeline has potential to transform Pakistan into an Asian Tiger. It can help resolve water dispute with India, said The Pakistan Economy Watch (PEW) on Sunday.

Iran-Pakistan gas pipeline will not boost Iran economy and influence to a level that is unaccepted by US. Tehran will never emerge as a monopolistic supplier; it is not a wildcard in hands of Ahmadinejad. Americans are opposing the project as they have perceived the project as a threat to their monopoly in the region but have failed to offer any alternative, said Dr. Murtaza Mughal, President PEW. Washington needs to understand that benefits of a cooperative strategy are always better than the dividends of a non-cooperative strategy. Persistent opposition can supplement anti-American feelings among Pakistanis, he added.

IPI can boost our relations with China and may help resolve water issue with India as New Delhi may not be able to ignore this source of energy for long. A gas-for-water deal can emerge as a believable confidence building measure.

“We need this gas, as our economy is under stress and it cannot absorb the shocks of wide swings in energy prices having serious repercussions,” said Dr. Murtaza Mughal.

Pakistan has limited ability to develop indigenous resources in the short run without compromising other critically important sectors. Our policymakers have not developed resources that can keep pace with economic expansion resulting in great energy demand-supply gap which Iran gas can help subside.

For Pakistan, it is an economic issue but US view it as a political issue that has delayed the project since 1990 when the world’s second largest producer proposed sale of part of 974 trillion cubic feet gas. US should stop efforts to deprive Pakistanis of their legitimate right, said Dr. Mughal.

Pakistan Economy Watch (Islamabad), June 28, 2010, http://pakistaneconomywatch.com/?p=247#more-247


PAKISTAN-IRAN PIPELINE

Pakistan will construct about 780-km, 42” diameter pipeline from the border, traversing along the Makran Coastal Highway to connect with its existing gas transmission network at Nawabshah, said Naim Sharafat, MD, Interstate Gas Systems (Pvt) Ltd (ISGS) here on Wednesday.

Briefing the Senate Standing Committee for Petroleum and Natural Resources about the status of the Iran-Pakistan Pipeline project, he said almost 665-km of the pipeline will pass through Balochistan while about 115-km of the pipeline will be laid in the Sindh province, he said.

This was the first Senate Committee meeting held at SSGC since Iran and Pakistan inked the historic agreement in Tehran in June 2010 for the supply of natural gas to Pakistan from 2015.

The meeting was chaired by Sabir Ali Baloch, the Standing Committee Chairman. Naim Sharafat, MD, ISGS who was accompanied by his CFO Mobin Saulat dilated on the salient features of the 1,150 km pipeline, which will connect Iran’s South Pars gas field with Balochistan and Sindh provinces.

The estimated cost of Pakistan segment is $1.2 billion to be incurred over a 4-year period, Mr. Sharafat added.

He further explained the project is planned to be funded at a debt-equity ratio of 70:30 requiring an equity investment of $373 million and debt financing of $872 million. Mr Sharafat said the project’s debt portion is expected to be secured from a combination of domestic and international financiers including Sindh and Balochistan governments, SSGC, SNGPL, OGDCL, PPL, PARCO and NBP (whose contribution will be $190 million or 51% of equity structure) as well as potential private investors including Petronas and Gazprom (whose contribution will be $183 million or 49% of the equity structure). MD, ISGS stated that under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 mmcfd gas with a provision to increase it to one billion cubic feet a day (bcfd).

The senators suggested that the stakeholders in the routes traversing the pipeline must be taken into confidence, majority of which are remote and less developed areas, with clear-cut assurances for the provision of new schools, hospitals and vocational training centres. In response to the senators’ queries, MD, ISGS said that being one of the largest infrastructure projects the country has ever seen, the IP project will create

62 IPRI Factfile

new job opportunities in the provinces of Balochistan and Sindh, thus improving the income level and the standard of living of its citizens.

In response to the senators’ apprehensions, Mr. Sharafat stated that Iran-Pakistan Project’s GSPA was broad enough to allow force majeure relief in the event the project is hampered due to UN sanctions on Iran. MD, ISGS said that in case the project does not materialize, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to the system.

Explaining the current status of the project, MD, ISGS said that a detailed route survey was in progress to pave way for the engineering and design of the pipeline facilities. staff report

Daily Times (Lahore), July 8, 2010, http://www.dailytimes.com.pk/default.asp?page=2010\07\08\story_8-7-

2010_pg5_15

PAK PORTION OF IRAN GAS PIPELINE TO COST $1.2 BN

The Pakistani segment of the gas pipeline from Iran will cost $1.2 billion and work will be completed in four years, an official said.

Managing Director Interstate Gas Systems, Naim Sharafat, said the project is planned to be funded through a debt-equity ratio of 70:30, requiring debt financing of $872 million and equity investment of $373 million. The Interstate Gas Systems is a joint venture of Sui Southern Gas Company and Sui Northern Gas Pipelines.

He was giving a presentation to the Senate standing committee for Petroleum and Natural Resources on the status of Iran-Pakistan gas pipeline project at the Sui Southern Gas Company (SSGC).

This was the first Senate committee meeting at the SSGC since Iran and Pakistan inked the historic agreement in Tehran in June for the supply of natural gas from 2015.

Chairman Standing Committee Sabir Ali Baloch chaired the meeting, which discussed salient features of the 1,150-kilometre pipeline that will connect Iran’s South Pars gas field with Balochistan and Sindh provinces.

Sharafat said the project’s debt portion is expected to be secured from domestic and international financiers including Sindh and Balochistan governments, Sui Southern Gas Company, Sui Northern Gas Pipelines, Oil and Gas Development Company, Pak Petroleum, Pak-


Arab Refinery Company and National Bank. The NBP will contribute $190 million or 51 per cent of equity structure.

Besides, potential private investors include Petronas of Malaysia and Gazprom of Russia which will contribute $183 million or 49 per cent of the equity structure.

Further elaborating, Sharafat said Pakistan will construct about a 780-kilometre 42-inch diameter pipeline from the border, traversing along the Makran Coastal Highway to connect with existing gas transmission network at Nawabshah. Almost 665 km of the pipeline will pass through Balochistan while about 115 km of the pipeline will be laid in Sindh.

He said under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 million cubic feet per day (mmcfd) of gas with a provision to increase it to one billion cubic feet a day (bcfd).

The senators suggested that the stakeholders in the pipeline routes must be taken into confidence, majority of which are remote and less-developed areas, with clear-cut assurances about providing new schools, hospitals and vocational training centres.

In response to queries, the MD Interstate Gas Systems said being one of the largest infrastructure project, the Iran-Pak pipeline will create new job opportunities in the provinces of Balochistan and Sindh, thus improving income level and standard of living of citizens.

Sharafat stated the Gas Sale and Purchase Agreement was broad enough to allow force majeure in the event the project is hampered due to United Nations sanctions on Iran. He said in case the project does not materialise, a liquefied natural gas terminal will be set up at Gwadar to allow re-gasified LNG to the system.

Giving the current status of the project, Sharafat said a detailed route survey was in progress to pave the way for engineering and design of pipeline facilities.

Later talking to media, the chairman Senate committee said it was important that the project start as soon as possible to bridge the rising natural gas demand-supply gap.

Ghazanfar Ali, Express Tribune, July 8, 2010, http://tribune.com.pk/story/26363/pak-portion-of-iran-gas-pipeline-to-cost-1-2b

64 IPRI Factfile

PAKISTAN-IRAN PIPELINE: PAKISTAN TO CONSTRUCT 780-KM, 42 INCH DIAMETER PIPELINE

Pakistan will construct about 780-km, 42” diameter pipeline from the border, traversing along the Makran Coastal Highway to connect with its existing gas transmission network at Nawabshah, said Naim Sharafat, MD, Interstate Gas Systems (Pvt) Ltd (ISGS) here on Wednesday.

Briefing the Senate Standing Committee for Petroleum and Natural Resources about the status of the Iran-Pakistan Pipeline project, he said almost 665-km of the pipeline will pass through Balochistan while about 115-km of the pipeline will be laid in the Sindh province, he said.

This was the first Senate Committee meeting held at SSGC since Iran and Pakistan inked the historic agreement in Tehran in June 2010 for the supply of natural gas to Pakistan from 2015.

The meeting was chaired by Sabir Ali Baloch, the Standing Committee Chairman. Naim Sharafat, MD, ISGS who was accompanied by his CFO Mobin Saulat dilated on the salient features of the 1,150 km pipeline, which will connect Iran’s South Pars gas field with Balochistan and Sindh provinces.

The estimated cost of Pakistan segment is $1.2 billion to be incurred over a 4-year period, Mr. Sharafat added.

He further explained the project is planned to be funded at a debt-equity ratio of 70:30 requiring an equity investment of $373 million and debt financing of $872 million. Mr Sharafat said the project’s debt portion is expected to be secured from a combination of domestic and international financiers including Sindh and Balochistan governments, SSGC, SNGPL, OGDCL, PPL, PARCO and NBP (whose contribution will be $190 million or 51% of equity structure) as well as potential private investors including Petronas and Gazprom (whose contribution will be $183 million or 49% of the equity structure). MD, ISGS stated that under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 mmcfd gas with a provision to increase it to one billion cubic feet a day (bcfd).

The senators suggested that the stakeholders in the routes traversing the pipeline must be taken into confidence, majority of which are remote and less developed areas, with clear-cut assurances for the provision of new schools, hospitals and vocational training centres. In response to the senators’ queries, MD, ISGS said that being one of the largest infrastructure projects the country has ever seen, the IP project will create


new job opportunities in the provinces of Balochistan and Sindh, thus improving the income level and the standard of living of its citizens.

In response to the senators’ apprehensions, Mr. Sharafat stated that Iran-Pakistan Project’s GSPA was broad enough to allow force majeure relief in the event the project is hampered due to UN sanctions on Iran. MD, ISGS said that in case the project does not materialize, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to the system.

Explaining the current status of the project, MD, ISGS said that a detailed route survey was in progress to pave way for the engineering and design of the pipeline facilities.

Daily Times (Lahore), July 8, 2010, http://www.dailytimes.com.pk/default.asp?page=2010\07\08\story_8-7-

2010_pg5_15

PAKISTAN PLANS TO MOBILISE DOMESTIC FUNDING Pakistan plans to mobilise domestic funding for a multi-billion dollar gas pipeline from Iran in the wake of U.N. sanctions on Tehran, which bar global lenders from supporting the project, a top government official said on Wednesday.

The government remains undeterred by the UN sanctions against Iran because of the burgeoning energy needs of the country, which spends $10 billion annually to import furnace oil just to run power plants, said petroleum secretary Kamran Lashari.

“There is no doubt about financing being a big challenge,” he said after a meeting of the Senate’s Standing Committee on Petroleum. “We need to arrange $1.2 billion and we need to work hard for that.”

The committee was told that funding will be under a 70/30 debt to equity ratio, he said. “SSGC, SNGPL, Pakistan Petroleum Limited, OGDC and National Bank can easily put together funds for the equity.”

The Managing Director of Interstate Gas Company Naim Sharafat said that some local pipeline manufacturers assured the government of suppliers’ credit.

The Interstate Gas Company is spearheading the construction of Pakistan’s 780 kilometers section of the pipeline.

“Getting financiers is not as hard as it seems,” he said. “The government has already asked public sector entities to pump in the equity. The National Bank of Pakistan and other commercial banks can

66 IPRI Factfile

also be approached to raise the money. The National Bank will also contribute $190 million, or 51 percent, to the equity structure.”

“In case the project does not materialise, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to the system.”

The total length of the pipeline from Iran to Pakistan is 1,900 kilometers. Iran has already started the construction despite sanctions. There are different routes being considered for the project, but the likely route would be through the restive Balochistan’s Gwadar district.

Pakistan depends heavily on the natural gas to run factories and households. Gas makes up nearly 50 percent of its total energy consumption. But demand has surpassed supply in recent years as existing wells deplete.

Production stands at 4 billion cubic-feet per day, while demand stands at around 4,800mmcfd, according to some estimates. Pakistan seeks to import 750mmcfd from Iran.

Lashari said that by the time Pakistan starts importing gas from Iran in 2015, the demand would have doubled to 8 BCF. “There would be a need to import much more.”

Security of the Iran-Pakistan gas pipeline remains a big issue. Baloch militants, who demand greater provincial autonomy, attack gas pipeline infrastructure regularly.

Chairman of the committee Senator Sabir Ali Baloch said that the project would remain on track despite the security problems. “We will have to address the grievances of the locals.”

Saad Hasan, News International (Rawalpindi), July 8, 2010, http://www.thenews.com.pk/daily_detail.asp?id=249452

TEHRAN PRESSING INDIA ON LAND GAS PIPELINE

A direct land route to supply India with gas from Iran is the most economically feasible option, an adviser to Iranian energy officials said in Tehran.

Asghar Soheilipour, an adviser to officials at the National Iranian Gas Co., said New Delhi was considering importing Iranian natural gas through an undersea route.

He cautioned, however, that a direct route through Pakistan is the cheapest option for India, Iran's state-funded broadcaster Press TV reports.


Iran and Pakistan have agreed to build a pipeline from the South Pars gas field in the Persian Gulf. Soheilipour said that option was the most efficient route.

Indian officials said they were interested in having Turkmenistan export gas to northern Iran in a swap for exports through an underwater pipeline. That pipeline, part of broader South Asian initiative, would diminish the need for the overland plan from Iran.

The undersea option was raised during a May visit to New Delhi by Turkmen President Gurbanguly Berdimuhamedov. The Turkmen president before his trip called for the independent launch of the Turkmenistan-Afghanistan-Pakistan-India pipeline, another rival to Iran's pipeline to Pakistan.

Washington opposes any of the projects for its allies in Pakistan and India that include Iran.

UPI Asia, July 9, 2010, http://www.upiasia.com/Science_News/Resource-

Wars/2010/07/09/Tehranpressing-India-on-land-gas-pipeline/UPI-20161278685538/

PAKISTAN GOING AHEAD WITH IRAN GAS LINE

Pakistan is going ahead with the gas pipeline project with Iran despite the US warning as Islamabad's understanding of the Comprehensive Iran Sanctions Accountability and Divestment Act, 2010, is that it does not impact the long-awaited collaborative venture that is crucial to the country's energy requirements.

“We analysed the new law passed by the US Congress and our opinion is that it does not affect the Iran-Pakistan gas pipeline as the sanctions are restricted to investment in petroleum refinement besides oil and gas sectors, said an official. Also, this is an agreement between two governments and Pakistan is exporting; not importing or investing in Iran.

Consequently, both countries are proceeding as per the agreed schedule. Iran is constructing the last 300-km stretch of the pipeline from Iranshahr to the Chabahar port and Pakistan is conducting the feasibility study on its leg of the pipeline from the border with Iran to Nawabshah, the hub of the country's gas pipelines in the province of Sindh.

On his last visit to Islamabad mid-June, U. S. Special Representative to Afghanistan and Pakistan Richard Holbrooke had said there was a

68 IPRI Factfile

possibility of the pipeline running into rough weather because of the sanctions imposed on Iran owing to Tehran's refusal to suspend uranium enrichment that could produce fuel for a nuclear weapon.

While Pakistan officials maintained that he said this only to the media, Mr. Holbrooke was quoted by the American press after a special interaction as saying: “We cautioned the Pakistanis to try to see what the [Congressional] legislation is before deciding how to proceed because it would be a disaster if we had a situation develop where an agreement was reached which then triggered something under the law.”

Though Mr. Holbrooke did not go into the details of the legislation that was being drafted at that juncture, he said it could well be comprehensive and, therefore, cause problems for any company or country doing business with Iran. Primarily, according to the Special Representative, the U. S. had told Pakistan not to commit itself too much into the deal till the contours of the legislation are known.

The US warning came a week after Iran and Pakistan had inked the last in a series of agreements needed to operationalise the deal. As per the agreement, Iran will export more than 21 million cubic metres of natural gas daily from 2014 to Pakistan. The pipeline will facilitate transfer of natural gas from Iran's biggest gas field in South Pars to Pakistan through Balochistan. Iran has already constructed the 907 km-long section of the pipeline from Asalooyeh Energy Zone to Iranshahr.

Anita Joshua, Hindu (India), July 9, 2010, http://www.thehindu.com/news/international/article507789.ece?service=mobile

INDIA, IRAN TO HOLD GAS PIPELINE TALKS

The multi-billion-dollar Iran-Pakistan-India (IPI) pipeline is back on India’s agenda with the government planning to hold a bilateral meeting in Teheran on the issue after a gap of at least two years.

Petroleum secretary S. Sundareshan said the Iranian government proposed talks on the IPI to which India has agreed. The development comes in the backdrop of India’s indication of support for Iran against recent US sanctions.

“There is supposed to be a meeting of the joint working group to discuss the IPI-related issues,” Sundareshan said. “We had suggested dates in May which were not acceptable to the Iranian side. We are now given to understand that they would like the meeting in Iran. We have accepted the location and asked them to suggest dates.”


The last trilateral meeting on the IPI issue involving Iran, Pakistan and India was held in July 2007.

“What has not been understood is that the talks were stalled on the question of Iran suggesting an alternate pricing formula. There has to be further discussion on this,” Sundareshan said. “This is a major issue which is to be resolved. Once this is resolved the question of transit fee with Pakistan and transportation tariff will be taken up with Pakistan.”

Some 60 million standard cu. m a day (mmscmd) of gas likely to flow through the pipeline daily may be equally divided between India and Pakistan. The pricing formula for the gas, linked to the Japanese crude cocktail price, is for the gas reaching the Iran-Pakistan border from the source. A further price escalation is expected because of transit rights and transport tariff to be paid to Pakistan by India.

Talks on the 2,300km pipeline started in 1995, but have been delayed over price and transportation fees India would have to pay Pakistan. While India’s clinching of the civilian nuclear agreement with the US slowed the process, Iran and Pakistan decided to go ahead with the project without India, and have even extended a partnership offer to China.

“There have been no talks on IPI for more than two years. In June, the Iranians had informed us that they were interested in holding talks,” said another senior petroleum ministry official who did not want to be named.

India has recently warmed up towards Iran to court the energy-rich Islamic republic with whom New Delhi has shared uneasy ties of late. The two also recently held a meeting of the India-Iran joint commission—a panel that explores ways to boost economic ties between the two countries—after a gap of 16 months.

Iran is facing a fresh set of international economic sanctions for refusing to end its nuclear programme. Ironically, India, which is heavily dependent on energy imports, last week criticised the “extra-territorial nature” of the censures—without naming the US—saying the sanctions would “have a direct and adverse impact on Indian companies” and on India’s energy security.

While Iran has the world’s second largest oil and natural gas reserves, India is the world’s fifth largest energy consumer and imports 75% of its needs, accounting for 3.5% of global energy consumption. The trade between India and Iran, is around $15 billion.

70 IPRI Factfile

Foreign secretary Nirupama Rao last week said that Teheran’s importance as an energy partner stems from the “natural complementarity between the needs of energy-hungry India, which hopes to grow at a rate of 8-10% in the coming years, and Iran, which is home to the third largest proven oil reserves and second largest gas reserves”. Analysts, are however, sceptical about the pipeline becoming a reality.

“We can keep talking about it but I don't think its viable. There are some techno-commercial points that still need to be settled. One is the question of pricing and the second is the question of the physical security of the pipeline which passes through Pakistan, specifically the Baluchistan province,” said Uday Bhaskar, security analyst and head of the National Maritime Foundation.

Utpal Bhaskar, July 12, 2010, http://www.livemint.com/2010/07/11181639/India-Iran-to-hold-gas-

pipeli.html?atype=tp

THE IRAN-PAKISTAN GAS PIPELINE

Pakistan's growing energy needs and Iran's pool of energy resources make the two states natural economic partners, and served as the impetus behind the proposed gas pipeline, initially planned to include India as well.

Pakistan recently decided to move forward with a gas pipeline project with Iran, despite warnings from the United States that involvement could subject Pakistani companies to new United States sanctions. In an e-mail interview, Harsh V. Pant, lecturer in the Department of Defense Studies at King's College of London, explains the pipeline's significance in the context Pakistan-Iran relations. WPR: What are the driving interests for both parties in this pipeline project? Harsh V. Pant: Pakistan's growing energy needs and Iran's pool of energy resources make the two states natural economic partners, and served as the impetus behind the proposed gas pipeline, initially planned to include India as well. Facing an energy crisis that is having a damaging impact on the Pakistani economy, and with its domestic supplies of natural gas declining, Pakistan has now finalized the pipeline deal with Iran, despite Washington's demands to the contrary.

Pakistan's annual royalties from this project are expected to be between $500 million and $600 million. The project, if finalized, would


also represent a major boost to Iran's efforts to prevent its global isolation and economic marginalization, at a time when the West is imposing strong sanctions over Tehran's nuclear program. WPR: What obstacles does the project still face? Pant: The project faces a number of problems. Many in Pakistan believe that the price that Iran is charging for gas will make the project economically unviable. The pressure from the United States to abandon the project remains as strong as ever, and if the confrontation between the US and Iran over the nuclear issue intensifies, Pakistan will find it difficult to move ahead with the project. The pipeline will also pass through volatile areas in Pakistan that present the threat of insurgent sabotage. Finally, without the participation of India and/or China, the deal doesn't really make sense. Iran and Pakistan are hoping that India will join the project sooner rather than later, but India has reservations over the pricing of the gas. New Delhi's concerns over ensuring the security of the pipeline in Pakistan's restive Balochistan province also makes it difficult for India to accept the deal in its present version. WPR: What is the status of broader Iran-Pakistan relations, both economic and political? Pant: Tehran and Islamabad sought to improve bilateral relations after the fall of the Taliban in 2001. But the economic relationship between Pakistan and Iran has largely been shaped by Pakistan's demand for Iranian oil. As a result, ties have not significantly matured. The low level of economic exchange has hurt both states, as in the absence of a broad-based economic relationship, political and security tensions -- particularly over the situation in Afghanistan -- have tended to dominate this relationship. While both Tehran and Islamabad nominally support Afghan President Hamid Karzai's government, neither neighbor has been willing to sacrifice its own interests in the country. With time, tension has increased. Iran retains its special interests in Afghanistan's western Herat region, while Pakistan considers the Pashto-speaking southern sections of Afghanistan to be within its sphere of influence. Kabul remains a contested area within that sphere.

Kari Lipschutz, July 14, 2010, http://www.offnews.info/verArticulo.php?contenidoID=23536

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IRAN PAKISTAN PIPELINE ONE-THIRD COMPLETED Islamabad has shrugged off the United States’ unilateral punitive measures against Tehran, saying sanctions will have no bearing on the Iran-Pakistan gas pipeline project.

“The proposed project would be completed before 2014 as decided by the two countries in an agreement,” a Press TV correspondent reported Pakistan’s Foreign Ministry spokesman Abdul Basit as saying on Tuesday.

He added that the US bans will not affect the multi-billion-dollar contract on the import of natural gas from Iran.

The comments come a week after Pakistani Prime Minister Yousuf Raza Gilani chaired a high-level meeting to finalize a strategy under which the Pak-Iran gas pipeline is to be laid.

Gilani received a briefing from the petroleum and natural resources officials and asked relevant authorities to finalize the project in no time. After facing opposition by its front line ally on the so-called global war on terror, Pakistan has made it clear to the US that the pipeline, which will connect Iran’s South Pars gas field with Pakistan’s Balochistan and Sindh provinces, is essential to meet its energy needs.

The US administration tried to block the deal to put more economic pressure on Tehran over its nuclear program.

On June 12, the energy-starved South Asian country penned a gas pipeline deal with neighboring Iran under which Tehran agreed to deliver 21.2 million cubic meters (750 million cubic feet) of natural gas per day to Pakistan from 2014.

Last month, US President Barack Obama’s special envoy to Afghanistan and Pakistan Richard Holbrooke announced that Washington had sought to dissuade Islamabad from signing the deal, amid plans to intensify pressure on Iran.

Pakistan shrugged off the call, with Gilani saying Pakistan is “not bound to implement US decisions.”

Iran, however, has completed the construction of more than a third of the 2,600-kilometer gas pipeline, which is estimated to cost $7 billion.

July 16, 2010, http://pakistanledger.com/2010/07/16/ip-pipeline-one-third-completed/


PAK-IRAN GAS PIPELINE AGREEMENT

In a major breakthrough on the gas pipeline project, Pakistan and Iran signed on Tuesday the heads of agreement and an operational accord in Istanbul, clearing the way for implementation of the project of great significance to the two countries. It is hoped that the physical work would begin soon and gas would start flowing to Pakistan sometime in 2013.

This is indeed a historic achievement and would go a long way in overcoming the growing energy crisis in Pakistan and cementing ties between the two brotherly countries. Pakistan, these days, is facing acute shortage of gas and the future scenario is all the more grim as domestic reserves are depleting fast while the demand is rising at unprecedented pace. No country can progress and prosper without ensuring energy security and it is good that Pakistan-Iran gas pipeline project is step towards that direction. The project already got delayed considerably because of 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. It is good that the two countries have now decided to pursue it as a bilateral project but there are bright prospects of Chinese joining it because of mind-boggling energy consumption there. This option should also be pursued as Chinese association would help accelerate implementation of the project and make it more viable. Similarly, we have also been hearing since long about possibilities of importing gas from Turkmenistan and Qatar as well but there has been no worthwhile progress towards that end. As energy demand is rising and development is directly linked to energy security, it is time we move ahead on these two projects also. We can do the spadework for import of gas as well as electricity from Central Asia so that the projects are realized speedily upon return of normalcy in Afghanistan.

Editorial, Pakistan Observer (Islamabad), July 18, 2010, http://www.pakobserver.net/201003/18/detailnews.asp?id=20801

GAS PIPELINE PROJECT, “TO DO OR NOT TO DO”

In line with a series of meetings in connection with the Pak American strategic dialogues, the American representative for Pakistan and Afghanistan, Richard Holbrooke has asked Pakistan to “wait and see” and

74 IPRI Factfile

not to over commit itself till the new legislation regarding the energy sector of Iran is drafted. He has told Pakistan that the US Congress will come with the new legislation that may apply to the project and has warned Pakistan in the clear words that the legislation may have vital implications for Pakistani companies. It was the tenth visit of Richard Holbrooke since Barack Obama appointed him in this region.

However the Pakistani Foreign Minister, Shah Mahmood Qureshi in his news conference at Multan airport on Sunday said that although Pakistan is facing an acute dearth of energy but coming up with any final statement on the issue will be premature. If this agreement comes under UN sanctions then the course of action will depend upon the circumstances and they will not violate any international law.

One wonders that on Saturday during a press conference with the Pakistani Foreign Minister Holbrooke was saying that the US had no objections against the pipeline project. But the very next day he retreated from its earlier stance.

Well in a recent interview the Irani ambassador Masha Allah Shakri told the Pakistani anchor that America has high stakes in Iran. Geographical importance of Iran is above board.

The general opinion is that not only in Iran but in the whole Mid East America has its interests. Just look at a report of New York Times, the American experts have discovered in Afghanistan huge underground reserves of minerals. There is copper, iron, cobalt and light weight Lithium. Lithium reserves are greater than the biggest Lithium exporter, Bolivia. The global media points out that actually America wants to exploit the resources of Afghanistan and other countries of Mid East. Masha Allah Shakri in a blatant tone has questioned the validity of the right to America for becoming the guardian of peace in this region. He said America came in Afghanistan with the plea to solve the problem of narcotics, eradication of poverty, good governance and economic uplift. However none of these objectives have been so far materialized. It was indeed baffling to listen to the audacity of his stance. Hence keeping all these facts in mind it would not be difficult to discern why America revoked his earlier view on gas pipeline project.

The Pak Iran gas agreement involving $7b was signed on 13 June in Tehran. According to it for 25 years Iran will export 1 million cubic meters of gas to Pakistan per day from 2014. On the very next day, the work started to lay the pipeline from Iran to the Pakistani frontier. The length of the said pipe line is 300 kilometers.


Talking in this perspective, Pakistan’s petroleum secretary, Kamran Lashari told the media that in three years Pakistan will lay 700 kilometers long pipeline from Nawab Shah to the Iranian frontier and its feasibility report will be prepared in one year.

Gas is recognized as the fastest growing fuel source. As compared to expensive sources of energy, natural gas is economical than coal, wood, oil and it is environment friendly also. It is a cheap source of energy. Iran has the world’s second largest reserves of gas after Russia.

The crisis of energy makes it incumbent on the two countries to nurture economic collaboration in the face of globalized realities which are able to change the political and social structure of regions. They will be able to rephrase the issues like national security also. This project will also give way to reap political benefits.

This project boasts a good opportunity for economic development not only for Pakistan but Iran also. As Iran needs $25b to revamp its energy sector. As a result of the said project there will be development, enhanced employment opportunities, peace and prosperity in the region. Potential economic collaboration is thus necessary for having gains which will lead to engender a healthy relation for political discourse. It will be transformed and modified in this way.

This trade also has the potential to change the strategic face of the two countries and even other regions of Asia and the Mid East. It speaks of the mutual trust the two countries share with each other.

If we continue with it, we can also send the message to other powers that Pakistan is an autonomous country and can go for striking any agreement for benefiting its economy. This agreement can be an expression of the capability not to tolerate any interference on the part of any third party to take decisions in national interest. But the real issue is the imposing of the UN sanctions on Iran pertaining to this project and the Prime Minister of Pakistan Syed Yusuf Raza Gillani has revealed on Tuesday that in such a case Pakistan will act according to the international law. But otherwise Pakistan is not bound to go according to the American decision regarding the restrictions on Iran.

The agreement was signed at a time when the Security Council has asked the member countries to cut off every kind of co-operation with Iran. Also the resolution was passed to impose more sanctions on Iran on the pressure of America.

Iran is hit by fourth round of sanctions. The major allegation is that it is going ahead with its uranium enrichment activities. The member

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countries are asked to refrain from investing in military equipment. It was a sixth resolution against Iran during four years which was presented in the UN.

The cargo planes will be searched as per resolution. 40 Iranian companies and persons are banned to do business in other counties. The member countries will inform UN about the activities of Iran within sixty days as to act upon the sanctions is a must for them. 12 out of 15 countries in UN voted to impose sanctions. But Iran has given an inkling that it will not yield in like Syria and Lybia.

How this project will help solve inter and intra regional conflicts lies in the fact that it will facilitate the way and reassess the roles of both the countries for conflicts over Iranian Balochistan issue, differences over Shia-Sunni and Afghanistan conflicts.

There were some misunderstandings regarding the drilling of oil from Balochistan contiguous to Iran. It was a common assumption that Iran plays a role in destabilizing Balochistan so that Pakistan may not be able to obtain oil or gas from here because the underground flow of oil is from Iran to Balochistan and Pakistan can get this black gold with much ease. These and other problems of such type will be likely to spell out once we enter into a regular deal with Iran and it is carried on without any interference.

The major task is to lay the gas pipeline. It must be ensured that unnecessary delay should not be there for the preparation of report, its analysis and final approval. Therefore this task should be assigned to the experts. Efforts should be devised to ensure for its timely completion. Political parties should cooperate for successful completion of this project.

The project was planned in the 1990s. The land route included the laying of pipeline from Asaluyeh to Bandar Abbas, Iranshahr and Khuzdar. From there it was to be laid to Karachi and to Multan and then from Multan to Delhi as India was also included.

Regarding the sea route it was to follow the route from Persian Gulf to Arabian Sea.

Earlier India was supposed to be a party to this agreement but it was in favour of an off shore laying of pipeline. This was not possible due to practical hinges. Moreover India suspected the disruption of flows by the extremist forces in Pakistan. Further on American pressure it quitted last year. Its withdrawal was also caused by striking of a nuclear deal with America but, in case of Pakistan, will there be something concrete if


Pakistan retreats? It must ask for nuclear reactors along with the transfer of technology for production of power to meet its starving energy situation.

Shanzeh Iqbal, July 22, 2010, http://www.pakspectator.com/gas-pipeline-project-“to-do-or-not-to-do”/

IP GAS LINE: PAKISTAN MAY RAISE $1.6 BILLION ITSELF

Pakistan is considering generating $1.6 billion internally to fund the Iran-Pakistan gas pipeline project as it fears foreign firms may be susceptible to US pressure, Business Recorder has learnt reliably. "The government is trying to generate funds from Government Holding Company, Pakistan Petroleum Limited (PPL), National Bank of Pakistan (NBP) and some other local companies to execute the IP project," sources said, adding that SSGC and SNGPL may also contribute to funds.

The government had shortlisted a German firm "ILF" to conduct feasibility study on the gas pipeline project, but officials believe that now it would be better to award the contract to local companies such as SSGCL and SNGPL instead of the German firm which may step back any time due to US pressure.

Inter State Gas System (ISGS)'s board recently set up an 'Implementation Committee' to move forward on the project. Sources said ISGS would ink Gas Sales Purchase Agreements (GSPAs) with SSGCL and SNGPL, a prior requirement to identify the project's financiers. "The board of National Iranian Oil Company (NIOC) has also approved a gas pipeline deal between Pakistan and Iran," sources said, adding that Iran has conveyed this to the Pakistani government. Pakistan will depend on local oil and gas companies to generate funds of around $1.6 billion to carry out the project.

Responding to a question about funding from Iranian side for the project, officials said Pakistan would not seek funds from Iran. "By generating funds from local sources, the cost of gas will remain at reasonable level," sources said. Pakistan and Iran would be responsible for the laying of the pipeline in their respective territories. Work on the pipeline project will be completed by 2014. Work on the 900 kms pipeline in Iranian territory has already been completed whereas the work on the remaining 250 kms will be completed soon.

Business Recorder (Islamabad), July 27, 2010, http://www.brecorder.com/index.php?id=1084499&currPageNo=2&query=&

search=&term=&supDate=

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