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Pakistan and Iran may sign GSPA next month

ISLAMABAD — Pakistan and Iran have agreed to sign gas sales and purchase agreement (GSPA) for cross border pipeline project in the third week of next month. Informed sources said that due to Iran's increasing international commitments and compulsions, the signing of GSPA has been delayed for some time.

Iran has communicated to Pakistan that GSPA, which was earlier to be signed in the second week of January, could now be inked in the second or third week of February 2008. "But no firm date has been given to Islamabad to conclude the agreement", a source said.

Caretaker minister for petroleum and natural resources Ahsanullah Khan had told reporters on January 7 following the clearance by Economic Coordination Committee (ECC) of the Cabinet that GSPA with Iran will be signed next week. A senior official of the ministry of petroleum and natural resources when contacted confirmed that due to some Iranian government's engagements, the signing of GSPA between the two countries would take another two to three weeks.

"But we have in principle agreed on all the documents to be finalised about the GSPA transaction", he said hoping that dates for signing the agreement will mutually be finalised soon. This GSPA, the official clarified, would initially be between Pakistan and Iran and that it was still to be finalised with India.

"India is not so far on board, therefore, This GSPA is only between Teheran and Islamabad", he said. He said that all the issues had been discussed and finalised to sign GSPA by the technical experts and lawyers of both the countries and that the matter was more or less a done deal. "Now it is only a matter of time", he claimed.

Iran, Pakistan and India (IPI) gas pipeline project would cost $2.5 billion to $3 billion. He said as soon as the GSPA agreement was signed with Iran, consultants will be appointed to prepare the design of the gas pipeline and other structures.

Sources said that India was dragging its feet to join the proposed IPI project due to enormous pressure by the United States. In case India joined it, Pakistan could charge $150-$250 million annual transit fee for IPI project. The official said that gas price that has been finalised for the project on the basis of Japan Crude Cocktail (JCC), would be 40 per cent less than the current furnace oil prices and provide a saving of about $1 billion per annum in oil import bill. The official said three options for pipeline diameter were currently under consideration including 36 inch, 42 inch and 56 inch and would depend on India's decision to join the project.

He said Pakistan would welcome Indian participation in the project at any stage but clarified that a clear response from the Indian government was still to come on the subject. The implementation agreement for the project would be an inter-governmental sort of agreement and would be signed soon by the heads of states. Earlier in the month, Pakistan had asked Iran to enhance gas volumes for Islamabad by 50 per cent under the pipeline project in case India stays away from the trans-national deal. It was decided at the meeting of the ECC presided over by caretaker prime minister Muhammedmian Soomro.

Originally, Pakistan was to get a total of 2.1 BCFD of gas from 2600 Km IPI project and India was to receive 3.2 BCFD, making a total of 5.3 BCFD. The pipeline length will come down to about 1600 km resultantly reducing the project cost in case India does not join the project. Since India is not participating in the consultations on the project and has not formally taken a position whether or not join it, Pakistan has decided to increase the import volumes given its increasing gas shortfalls and continuous energy crisis in the country. Gas volumes to Pakistan would, therefore, increase to about 3.2 BCFD.

The delivered price of Iranian gas in Pakistan would be around $8 MMBTU (million British Thermal unit) at the current crude oil price of about 100 per barrel a day under the JCC based gas pricing mechanism already agreed to by the two countries.

Current gas prices in Pakistan are less than $2.6 per MMBTU, which means the imported gas would be about 200 per cent higher than domestic prices. The government, however, estimates that it would still be 40 per cent lower than furnace oil.