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.
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