By Babar Ayaz
Though the ground-breaking ceremony of the Pakistan-Iran Gas Pipeline Project is about eighteen years late, the national consensus is in favour of the project. The idea of ‘Persian pipeline’ has been in circulation since early the 1950s, but the preliminary agreement was signed between Pakistan and Iran in 1995. And there onwards a criminal neglect of this crucial energy project delayed both pipeline import of gas from Iran and LNG import. Result: country is faced with serious energy deficiency causing economic slow-down and ‘gas riots’ by the domestic consumers, who have been made an addict to this cheap source of energy.
At present almost 48% of the country’s energy needs are met by the indigenous natural gas resources. But years of lop-sided energy policies have resulted in creating a huge demand and supply of natural gas. Pakistan’s present natural gas demand is about 7.27 bcfd, while the supply is only 4.45 bcfd thus leaving a huge gap of around 2.8 bcfd. This gap in demand and supply is likely to further expand to around 8 bcfd by 2022, depending on the rate of GDP growth. As Pakistan has one of the largest natural gas pipeline distribution system, there is a considerable percentage of unaccounted for gas (UFG), because of pilferage, leakages and non-payment of gas bills by the people in the remote areas.
According to the project proposal, the pipeline will begin from Iran’s Assalouyeh Energy Zone in the south and stretch over 1,100 km through Iran. In Pakistan the 785 Km pipeline will pass through Balochistan and Sindh but officials now say the route may be changed if China agrees to the project. The total cost of Pakistan section of pipeline is $1.5 billion of which Iran has offered a loan of $500 million.
The natural question is why the project was delayed for 18 years when it was so crucial for the country. One of the major reason for this delay was that the post-1995 governments did not want to annoy the US and Saudi governments who were against expanding relations with Iran. The project was revived in Musharraf’s era with the assumption that the pipeline would be extended to India, it was even named by the optimists as ‘the peace pipeline.” But India used it as a ploy to get a nuclear agreement with the US and backed out from the project. On the other hand the US kept pushing Pakistan that Turkmenistan-Afghanistan-Pakistan gas pipeline would be a better option. This project had the backing of some leading American companies also. In 1995 at the Economist Roundtable with the Government of Pakistan in Islamabad, I had maintained that as Afghanistan is not going to settle, at least for next 15 years, Turkmenistan pipeline project would not be possible. (I had underestimated the time frame). My apprehensions were brushed aside by the then Interior Minister General Babar. The huge cost of indecision and delay of this project is that now it would be subjected to the UN and many bilateral economic sanctions against Iran.
Zardari government revived the project when it became clear that shortage of gas is dragging the economy down. The political side of speeding up this project is that Zardari wants to take the credit of standing up to the US-Saudi pressure and exploit this in favour of his party which has the image of towing the US agenda. His critics say that he is leaving this hot potato for his successor if PPP loses the election. The diplomatic reason is that Islamabad policy-makers think as the US needs Pakistan for finding a solution to the Afghan conundrum and exit of its forces by end 2014, they will not enforce harsh sanctions on the country.
On the other hand Pakistan has managed to get a deal from Iran because they are suffering from an acute fall in revenue. Almost 70 per cent of Iran’s $358 billion GDP is dependent on its energy exports. Because of sanctions the major importers of Iranian oil are gradually cutting down their imports from Iran. In the last couple of months Iran’s energy exports revenue has dropped by almost 42 per cent. That is the reason that Iran has agreed to finance the Pakistani sector of pipeline as they know, no foreign or Pakistani domestic bank will touch this project with a pole fearing international financial sanctions. To reassure Pakistan, Iran’s supreme leader Ayatollah Ali Khamenei recently told the visiting Pakistani delegation that the much-delayed $7.5 billion gas pipeline project must go ahead despite US opposition. “The Iran-Pakistan gas pipeline is an important example of Tehran-Islamabad cooperation, and despite hostilities towards the expansion of ties, we must overcome this opposition decisively,” Khamenei told Zardari, foreign news agencies reported. The pipeline also symbolizes that Iran is not completely isolated.
Zardari is now trying to impress upon the US administration that the gas is needed to overcome its energy crisis hence they should appreciate Pakistan’s position. The new UN and bilateral sanctions against Iran broadly include: measures to impose an assets freeze and dealings, and prohibition on 98 new entities of proliferation concern. They also prohibit the export to Iran of: different types of goods used in the shipbuilding, mineral exploration, mining, metal production, and telecommunications industries; vessels designed to transport or store crude oil or its products; hard currency totaling $40,000 or more in value; and new goods of proliferation concern. The expanded measures also prohibit the import of natural gas, oil, and petroleum or petrochemical products from Iran (my emphasis); the provision of marketing and other financial or related services in respect of certain prohibited goods; the provision of flagging or classification services to Iranian oil tankers or cargo vessels; and the provision of insurance and reinsurance to Iran or any entity in Iran. It is the shipping insurance clause that is pushing traditional Iranian oil importers to back off.
A billion dollar question for Pakistan policy makers’ is how violation of the sanction “the expanded measures also prohibit the import of natural gas, oil, and petroleum or petrochemical products from Iran” would be invoked against Pakistan. So far no country has been penalized for importing oil from Iran. China and India, who opposed expansion of sanctions on Iran, continue to import Iranian oil under the exemptions that they have taken from the UN and US. However, reports are that all oil importers from Iran are gradually tapering off their imports from Iran, but the process is expected to stretch over 15-18 months. Pakistan’s agreement with Iran is to lay down the gas pipeline within 15 months, which incidentally also coincides with the time frame of US forces withdrawal from Afghanistan. Pakistan is banking on the 1980s experience when because of its strategic importance to continue insurgency in Afghanistan the US administration turned a blind eye towards Pakistan’s nuclear programme. Pakistan is also hoping that the recent Iran and big 5 negotiations in Almaty will bear some fruit and sanctions may be eased if some progress is made in further talks.
Good news is that in spite of their political difference and the coming elections where political parties are usually miserly in supporting ruling party’s initiative the major political parties are supporting this project. Pakistan Tehrik-e-Insaf’s star economist Asad Omar says “Pakistan-Iran Gas pipeline is the best energy option for Pakistan.” He thinks that Pakistan should go ahead with the project in spite of opposition of the US administration as the gas import is critical for the economic growth of the country. PML (N) is also supporting the project, Zubair Omar who is a member of Nawaz Sharif’s manifesto committee told me on phone. Who, ever imagined that Zardari would stand up against US dictates—politics is indeed full of surprises! (firstname.lastname@example.org)