An energy lifeline

Will Iran-Pakistan gas pipeline invite US sanctions and ignite more political fire than generate energy despite the fact that Pakistan direly needs to boost its sinking economy?

By M. Aftab (Analysis)

Published: Mon 18 Mar 2013, 10:18 PM

Last updated: Fri 3 Apr 2015, 5:08 AM

The answer at this initial stage is “Yes” and “No”. The pipeline’s construction started at Gabd, Chahbahar, Iran, last week to bring Iranian natural gas to Pakistan in a ceremony shared by Pakistani President Asif Ali Zardari and Iranian President Ahmadinejad. The ceremony was immediately targeted by US State Department’s spokesperson Victoria Nolan, threatening Pakistan with “triggering” likely imposition of Iran nuclear-related sanctions.

But, both Zardari and Ahmadinejad voiced their “total commitment to complete the project, ” by January 2014. Iran also vowed to supply Pakistan with 4,000 megawatts of electricity, starting with 2,000 megawatts. It also announced “building a big oil refinery” at the new South-western Pakistani port of Gwadar.

UAE former minister for energy Mohammad bin Dha’en Al Hamili, attended the ceremony, besides other foreign dignitaries.

The total length of the pipeline is projected at 900 kilometres, of which 781 kilometres will be located in Pakistan. After entering the Pakistani territory it will be laid up to Nawabshah where it will be fed into the existing Pakistani gas supply network. It will cost Pakistan $1.5 billion, partly funded as Iranian loan to Pakistan. Iranian gas will help Pakistan generate 4,500 megawatts of electricity. It will help overcome shortage of natural gas for domestic, commercial and industrial users. It will increase supply of gas to the fertiliser industry, lowering fertiliser prices.

How serious is the US threat to impose sanctions against Pakistan? Said Nolan: “We have serious concerns, if the Iran-Pakistan gas pipeline project actually goes forward, than the Iran Sanctions Act will be triggered. We have been straight up with the Pakistanis about these concerns.” The US threat hit the Pakistani economy immediately. At the principal bourse the benchmark Karachi Stock Exchange Index KSE-100 fell down 441 points, eating away 2.5 per cent of the entire market capitalisation, on the back of the US announcement. But later in the week, it started recovering. The exchange rate was hit too. Dollar started selling at Rs102 in the unofficial market compared to Rs99.50, a day earlier.

How far does US opposes the pipeline and its future financial benefits to an Anti-Washington Iran? Its anger can be measured from the facts that the American pressure has already forced New Delhi to quit the project in 2009 after signing US-backed deal permitting it to buy Western nuclear equipment for civilian use. Originally, the pipeline was to go right into India and was called Iran-Pakistan-India (IPI) pipeline. If that can happen to an economically stronger and an international heavyweight India what will be the fate of an economically weak and a pro-US Pakistan? Only time will tell.

But, Pakistan and Iran are going ahead with the $7.5 billiongas pipeline project despite Islamabad risking sparking US sanctions.

At the Gabd, Chahbahar, ceremony pro-US Zardari said: “The pipeline project is not against any country, rather it is in the national interest of Pakistan, Iran and other countries in the region. By promoting regional integration, the countries in the region will be better placed to fight terrorism and extremism. In order to help ourselves, we have got to be economically sound,” he said.

President Ahmadinejad pointing his accusing finger towards US and other Western countries, and their “totally unjustified opposition” to the Iran-Pakistan gas pipeline project, under the excuse of Iran’s nuclear issue, said: “They are against Iran and Pakistan’s progress and have used the nuclear issue as their justification.”

“We did not expect Western companies to make investment in this pipeline, which guarantees, progress, prosperity and peace in the region. If they do not like to join it for any given reason, they are not entitled to rock the boat and disturb the project,” Ahmadinejad said.

Pakistan is in the throws of the severest energy crisis of its history. Its annual GDP growth has been reduced by more than two per cent to 2.5 per cent, just because of prolonged and severe electricity outages and natural gas shutdown to the industry. Billions of dollars worth of export orders chiefly textiles are being annually lost. The overall exports are now stagnating to around $21 billion a year. Jobs are being cut down by the industry and businesses. The Iran-Pakistan pipeline will export 21.54 million cubic metres of gas to Pakistan daily. Iran has already finished construction of the pipeline within is own territory. Iran’s Tadbir Energy Development Group, based in Tehran, will now carry out all the task of engineering procurement, construction and putting the pipeline on stream, from Iran-Pakistan border to Nawabshah, Pakistan. It will cost $250 million, which is called the first segment.

Completion of the second segment will connect gas pipeline to Pakistan’s national gas grid. It will also extend a $500 million financing to Pakistan. The balance of the amount will be raised by Pakistan itself through its own infrastructure development resources.

An Iran-Pakistan consortium comprising Tadbir of Iran and Inter-state gas systems (ISGS) of Pakistan is now busy working on the I-P project. Its deadline to bring the pipeline fully on stream is January 2014. The two companies have devised and divided the scope of the pipeline project, which includes engineering, procurement and construction among themselves. Tadbir plans to lay two kilometers of the pipeline per day, and complete the 781 kilometres of the pipeline in a time frame of 15 to 16 months.

Views expressed by the author 
are his own and do not reflect 
the newspaper’s policy

More news from Markets