IP deal: painting needs deft strokes of brush

Attention: open in a new window. PDFPrintE-mail

Petroleum Minister Shahid Khaqan Abbassi in an exclusive interview to Business Recorder stated that the Iran-Pakistan (IP) gas pipeline agreement allows for renegotiating the gas price and will be explored by the government.

His remarks seem to be a spanner in the IP project works. Consider: Pakistan's ongoing energy crisis has reached such alarming proportions with obvious repercussions on not only industrial output and national growth but also on the quality of life across the board that the urgency to seek energy on an emergent basis has become profoundly paramount.

Evidence indicates that amongst the three options at hand that would enable Pakistan to meet its energy crisis, the IP project appears to be the most economically feasible. The Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline supported by the US remains hostage to a war-torn Afghanistan and with the deadline for US troop withdrawal fast approaching the risk of an escalation in terror attacks on the pipeline may raise the risk component of the cost to an economically unviable level. In the event that Tapi pipeline becomes operational it would cost Pakistan 13 dollars per mmbtu.

LNG imports from Qatar remain mired in not only allegations of corruption but there is no dedicated terminal capable of handling this cargo which, if experts are to be believed, would take at least two years to construct. LNG would cost us from 17.5 to 19.5 dollars per mmbtu.

The IP gas pipeline would be completed and begin delivering gas by January 2014 and at a cost of 11 dollars per mmbtu. Given that it remains the cheapest fuel why would Iran agree to renegotiate its price? The answer may lie in the country's need for foreign exchange given that the sanctions imposed by the US have begun to bite clearly evident from reports that indicate there is a dearth of even basic medical supplies in Iranian hospitals. Thus the economic situation in Iran makes it highly unlikely for Abbassi to succeed in successfully persuading the Iranians to dish out an additional one billion dollars to finance the entire IP gas pipeline on our side of the border; Iran has already committed 500 million dollars for the project.

And while Iran's political isolation may have strengthened our bargaining position yet a major stumbling block to our pursuing the IP gas pipeline remains the dogged US opposition, made known to us both officially and on the media, and premised on domestic legislation that automatically sanctions those countries that import fuel from Iran. The last PPP-led coalition government as well as the current PML (N) government argue that other countries have been granted exemption from US sanctions so why not Pakistan. Implicit in this rhetorical question is the suggestion that the government would be able to convince the US to also grant an exemption to Pakistan. In this context it is relevant to be aware that countries granted exemption were already engaged in importing fuel from Iran (before US sanctions became effective) and used their historical reliance on Iranian fuel as their argument. Unfortunately, however, Pakistan does not falls in this category. Our increasing reliance has been on Saudi Arabia (accounting for 11.2 per cent of our total imports) and Kuwait (8.9 percent of total imports). The kingdom has been opposed - consistently and feverishly - to Tehran since the removal of the Shah of Iran in 1979. The fact that Prime Minister Nawaz Sharif while in Saudi Arabia hinted that IP gas pipeline may cost us friends in the international arena is being widely regarded by many as a response to Saudi concerns.

Be that as it may, US relations with Iran may well thaw in the near future. In his first press conference after taking over as Iran's new President, Hassan Rouhani stated that Iran was ready for "serious" talks on its nuclear programme without delay and "As the president of the Islamic republic, I am announcing that there is the political will to solve this issue and also take into consideration the concerns of the other sides."

However, by January 2014, Pakistan would have to pay Iran 3 million dollars a day as penalty; and it is this clause of the agreement that annihilates all arguments put forth by the US and its allies as Iran would seek to get that money should Pakistan decide to 'renege' on the IP project agreement. Our policymakers are therefore required to finish off the painting of the IP gas deal with a few deft strokes of the brush, although dealing with Saudi Arabia and the Islamic republic simultaneously can be a tricky business for most countries, including India that maintains good political and economic relations with these two major Gulf countries but has failed to strike a delicate balance in relation to its energy needs.

Courtesy: BR

Forex open Market rates & comments Archive

Login Form