ISLAMABAD  -  Petroleum Division has sought nod of the Cabinet Committee on Energy for the construction of 80 kilometre por­tion (Iranian Border to Gwadar) of Iran Pakistan gas pipeline project.

A meeting of the Cabinet Committee on Energy has been convened tomor­row (Friday) to consider a summary of the Petroleum Division for the con­struction of 80 kilometre portion of Iran Pakistan gas pipeline, official doc­uments seen by The Nation reveals.

The CCOE will also consider circular debt report for January 2024, monthly report sheet of power plants operated to ensure security constraints, econom­ic dispatch for the month of January 2024, and submission of monthly re­ports on the progress towards imple­mentation of Competitive Trading Bi­lateral Contracts Market (CTBCM), the documents reveals.

Initially it has been decided that in first phase of IP project work on 80km portion from Pak-Iran border to Gwad­er will be started, the source said. The estimated cost of the 80km Pak-Iran border to Gwadar portion of the pro­ject will be $158 million and it has been decided to fund it through Gas In­frastructure Development Cess (GIDC), the documents reveals. 

According to the documents during the PDM coalition government, Prime Minister Shehbaz Sharif had constitut­ed a committee to recommend a way forward regarding the IP Project keep­ing in view its economic viability, fi­nancing, etc on 31th January 2023. 

However, the committee was re­placed by the interim government with Ministerial Oversight Commit­tee (MOC) on 11th September 2023. The MOC endorsed the decision of the previous committee and got the Waiv­er Application prepared by foreign le­gal counsel, the source said. Moreover, MOC also obtained the legal opinions from foreign legal counsel, M/s Willk­ie Farr & Gallagher LLP. With regards to US sanctions on Iran, M/s Willkie Farr opined that if Pakistan proceeds with the project, there is a likelihood of im­position of sanctions on the company. Regarding the Force Majeure and/or Excusing Event notice, M/s Willkie Farr opined that Pakistan does not have a strong case post September 2019 un­der the French law as no documenta­ry evidence is available to support that concrete steps have been taken by Pa­kistan to implement the project. 

The MOC, after due consideration to the discourses held with Iran dur­ing the past one year has recommend­ed that though the final draft of the waiver application is ready, its fil­ing with US authorities is deferred due to current geo-political situation. The High-Level Committee to dis­cuss and resolve all outstanding is­sues with Iran including further ex­tension of time under the French Civil Code. In consideration of NIOC’s Ma­terial Breach notice, Petroleum Divi­sion has constituted the Coordination Committee in January 2024 in accord­ance with Clause 19.1.1 of the GSPA to be headed by Joint Secretary, Petrole­um Division. The MOC further recom­mends, subject to approval by com­petent authority, to start work on construction of gas pipeline from Pak-lran border to Gwadar (80 km of the pipeline), initially, by utilising GIDC funds. The committee decided to con­tinue engagement with the Govern­ments of Russia, China, Turkmenistan and Azerbaijan regarding gas swap ar­rangement in rotation to the project. 

Now a summary based on the recom­mendation of MOC will be presented to CCOE for endorsement, the source said.

Meanwhile giving the background details an official of the Petroleum Di­vision said that in May 2009 agree­ment for the project was signed, for supply of gas of 750 MMCFD for 25 years from South Pars gas field of Iran and delivery at Pak-lran border. Un­der the project 1931km line will be laid for transportation of Iranian gas to Pakistan, including 1,150km long pipeline within Iran and 781km with­in Pakistan. Both the countries were required to implement the project in their respective territories. As per the agreement the project was to start supply by January 2015. Iran has al­ready completed construction of over 900km within Iran, while the remain­ing segment of 250km is yet to be con­structed. 

In December 2012, the government of Iran had proposed to provide fi­nancing for the project as well as EPC contractor under the Government to Government Agreement. However, the Iranian government unilaterally backed out from G to G Agreement in March 2014, 

Pakistan, therefore, served the Force Majeure and/or Excusing Events No­tice under the IP-GSPA to National Ira­nian Oil Company (NIOC). Accordingly, the project activities have been halted. 

Iranian company NIOC served a no­tice of Material Breach of IP-GSPA ob­ligations as well as a notice under the Sovereign Guarantee issued by Pa­kistan in favour of NIOC in February 2019. 

The matter was negotiated with Iran and both sides agreed to extend the time for five years under the French Civil Code. Accordingly, the Amend­ment Agreement to the GSPA was signed in September 2019. 

Iran informed Pakistan that further extension of time under the French Civil Code would be subject to substan­tial progress by Pakistan on the pro­ject within next three months else Iran would be constrained to refer the mat­ter to international arbitration. 

On 21st December 2023, NIOC served a Material Breach Notice to Pa­kistan’s Inter-State Gas Limited alleg­ing material breach of buyer’s warran­ties. Through the same notice NIOC has served a notice pursuant to the Sover­eign Guarantee issued by government of Pakistan in favour of NIOC. NIOC gave a 180 days period to ISGS to rem­edy the alleged Material Breach and re­ferred the matter to Coordination Com­mittee for resolution. 

The source said that it has been es­timated that in case of non-imple­mentation of the project by Pakistan, Tehran will move the Paris-based In­ternational Arbitration and it has been estimated that Pakistan will pay potential contractual liability of ap­proximately $18 billion.