ISLAMABAD - The Iranian oil minister’s alarming declaration last week that Tehran will likely abandon the multi-billion Iran-Pakistan (IP) gas pipeline project raises key questions about what prompted this statement, its timing and ramifications.
Two interesting developments related to the IP gas pipeline project took place in the last week. Firstly, Islamabad-based think tank, Sustainable Development Policy Institute (SDPI), reported the pricing formula in the gas sale agreement was flawed and would ‘strangle’ the national economy. It forewarned that the contract with Iran carried disastrous consequences for Pakistan economy as the gas sold will likely be several times costlier than the natural gas produced domestically. Secondly, Petroleum Minister Khaqan Abbasi asked the Iranians to fund approximately $2 billion infrastructure on the Pakistan side and remarked that in going ahead with the project Pakistan did risk facing international sanctions. Finance Minister Ishaq Dar also made a similar request to his Iranian counterpart. So is it because of these developments that the Iranian government has indicated it wants out of the IP project? Over the last few months Iranians have been told many different things about the project and the Iranian side may well have been irked beyond patience by Islamabad’s seemingly delaying tactics. It could also be a strong signal to Pakistan that Tehran is not ready to renegotiate the pricing mechanism.
Interestingly, both these developments coincided with the prime minister’s first official visit to Washington where this issue was raised by the Pakistani side. Despite American opposition to the project, Khaqan Abbasi has been insisting that the government will proceed with it regardless of opposition by any country.
All of these statements make one wonder what the basis for the petroleum minister’s confidence was that the pipeline project will go ahead and this sudden turnaround.
There is also a concern that to offset the US and Saudi pressure the government created a situation to push the Iranians to call off the project themselves. It is no secret in the official circles that some important Gulf States have also been opposing the project.
From the outset the prime minister and his key cabinet members, including the ministers for finance, planning and information, have been consistently and vehemently dispelling the impression that Pakistan is no longer serious in pursuing the pipeline project. They have asserted repeatedly that Pakistan will go ahead with it. Even after the Iranian oil minister’s statement a similar line echoed from the Foreign Office and various government quarters.
The current Pakistan government must be confronted with a fact-sheet of its own statements and be asked to explain its contradictions. The assurance from the government on the financing issues was always that it was manageable. Yet in August, to a TV anchor’s repeated query on a TV channel Petroleum Minister Shahid Khaqan Abbasi categorically stated: “No question of abandoning it, we are pursuing the project with full diligence.”
But raising serious doubts about its fate is Iranian Oil Minister Bijan Namdar Zanganeh’s statement on the sidelines of a gas forum in Tehran where he was quoted as saying: “The contract for supplying gas to Pakistan is likely to be annulled. Given current conditions, we do not have hope for exporting gas to Pakistan.”
While all this conveys disconnect between Tehran and Islamabad, it also suggests much confusion at the policy level. The government must come up with a clear explanation. All political parties should raise the issue inside the parliament.
On August 1 the government gave US Secretary of State John Kerry a comprehensive non-paper conveying Pakistan’s standpoint on why no sanctions on the IP project would be valid and feasible. But now by all accounts it appears the project will be scrapped.
After the SDPI report, the issue of pricing is also being raised. But those matters mean renegotiations not killing a project. If the government has issues about pricing, negotiations make sense.
According to the penalty clause in the bilateral agreement, Pakistan will have to pay US$ 3 million per day if the IP project is not completed by December 2014, thus also providing grounds for arbitration.
The $7.5 billion IP pipeline project, also dubbed as ‘peace pipeline’, was conceived in 1990 and suffered repeated delays. Initially, India was also a part of it but wriggled out in 2009. The construction phase of the nearly 1,900km IP pipeline was officially inaugurated this year in March. The presidents of both the countries attended the ceremony in the Southeastern port city of Iran.
People beyond Pakistan have also commented on Pakistan’s misfortune in the making. Nepal’s leading journalist/editor Kanak Mani Dixit’s tweet was: “Iran-Pak-India gas pipeline would’ve taken Southasia ahead; idea has just breathed its last.”
Pakistan should not take the demise of the project as given. The political parties and the media should force an explanation and course correction from the government.
This project is considered vital for Pakistan’s energy security and fast-growing energy requirements. It will help overcome the acute gas and electricity shortages in the country, directly linked to economic revival, a key slogan of the PML-N government.
Pakistan-Iran ties are already strained due to tensions on their border with recent trespassing incidents, reportedly involving Pakistanis. Islamabad’s dragging its feet on the IP project and giving mixed signals is bound to sour the relations further. At a time when Pakistan is trying to pursue a strategy of ‘circle of friends’ aimed at improving ties by pursuing cordial friendship and trading with bordering countries, it cannot afford to let down an important neighbouring state like Iran.
Merely asserting commitment to the project can hardly be comforting for Tehran when Islamabad has yet to start work on its 780km section while the Iranian side has almost completed the 900km pipeline to the Pakistan border. Under the contract the pipeline project is to be commissioned by December 2014 and gas supplies are to continue for 20 years’ term which is extendable by another five years.
Many believe that the IP pipeline project has turned into a major foreign policy challenge for Islamabad where its delaying tactics are read as a clash between domestic needs and Pakistan’s foreign policy priorities.