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Iran–Pakistan–India gas pipeline

Iran–Pakistan–India gas pipeline

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Published by ASHFAQ REHMANI
Peace pipeline: between the three countries
Peace pipeline: between the three countries

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Published by: ASHFAQ REHMANI on Sep 14, 2009
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05/11/2014

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Peace pipeline: between the three countries
Column by: Ashfaq RehmaniEmail: pasrurmedia@hotmail.comAccess to cheap energy has become essential to the functioning of modern economies.However, the uneven distribution of energy supplies among countries and the criticalneed for energy has led to significant vulnerabilities. Threats to individual person's andnational energy security include the political instability of several energy producingcountries, the manipulation of energy supplies, the competition over energy sources,attacks on supply infrastructure, as well as accidents and natural disasters. It is also thelimited supplies of the most common forms of primary energy. Oil and Gas that changes perceptions on this topic. The potential need to change our primary energy sources in theforeseeable future is the crux of the energy security question, leading to higher prices,more limited access to sources of energy, competitions and political troubles, which inturn make the threat even larger.The Iran-Pakistan-India (IPI) gas pipeline, once ratified, will be a building block towards peace and stability in South Asia, and would enhance the magnitude of trade between thethree countries. But the pipeline is yet to see an agreement on prices: the prices proposed by Iran are more than double of what Pakistan and India are willing to accept. Indiawants to pay a fixed amount per unit delivered to its border, but Iran wants the cost to belinked to the fluctuating international energy prices, saying the prices offered by Pakistanand India is half of what it is looking for. Also the instability in Balochistan and barrier  politics played by America is major hindrances coming in the way of the project.Trilateral talks are underway, and all three countries are sanguine about the prospects of agreement. The project was conceptualized in 1989 by Rajendra K. Pachauri in partnership with Ali Shams Ardekani, former Deputy Foreign Minister of Iran. Dr Pachauri proposed the plan to both Iranian and Indian governments in 1990. TheGovernment of Iran responded positively to the proposal. At the annual conference of theInternational Association of Energy Economics, 1990, Dr Ardekani backed Dr Pachauri's proposal.The Iran–Pakistan–India gas pipeline, also known as Peace pipeline, is a proposed 2,775-kilometre (1,724 mi) pipeline to deliver natural gas from Iran to Pakistan and India.Project is India is predicted to require 146 billion cubic meters (bcm) of gas per annum by 2025, up from 33 bcm per annum. With a total length of 2,775 km and an estimatedcost of $7 billion (2006) the pipeline is bound to change the face of regional politics inSouth Asia. The much talked about “pipeline of peace” brings with it multi-facetedimplications for gas hungry Pakistan and India, and also for Iran, home to world’s secondlargest natural gas reserve.The pipeline will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 bcm of natural gas per annum, which is expected to be raised later to55 bcm. It is expected to cost US$7.5 billion. The construction is to start in 2009 and the pipeline is expected to be completed in September 2012. India has agreed to givePakistan a transit fee of $200 million per year, which is equivalent to $0.60 per millionBritish thermal unit for allowing passage of the pipeline through that country
 
Pakistan and India are facing acute natural gas shortage due to the rising energy demandin both countries. In 1995 Pakistan and Iran signed a preliminary agreement for theconstruction of a natural gas pipeline linking Karachi with Iran’s South Pars natural gasfield. Iran later proposed an extension of the pipeline into India. Once underway, not onlywould Pakistan benefit from Iranian natural gas exports, but Pakistani territory would beused as a transit route to export natural gas to India.The gas pipeline which is expected to be completed in 3-5 years will pump 60 millionstandard cubic meters of gas everyday to Pakistan where gas processing is still below 1trillion cubic feet a year, while energy starved India which currently produces half of thenatural gas it needs would receive 90 million standard cubic meters per day.The pipeline is proposed to start from Asaluyeh, South Pars stretching over 1,100 km inIran itself before entering Pakistan and traveling through Khuzdar, with one section of itgoing on to Karachi on the Arabian Sea cost, and the main section traveling on to Multan.From Multan the pipeline travels to Delhi where it ends. This project offers greatopportunities to Pakistan, as the gas pipeline will also set the course for possible oil andgas pipelines to China, as China in the past has expressed its willingness to bring oil andgas via Pakistan.After blessing India with a civil-nuclear deal recently, the US opposed the project because of the financial and strategic benefits it would give to Iran, and prefers a pipeline project, which supplies gas to India via Turkmenistan.The Bush administration has been blowing hot and cold on the issue, but by now it seemsevident that Washington would not want the IPI project to materialize. Pakistan and Indiaon the other hand are pressing ahead with the talks, albeit the three countries have failedto reach an agreement on prices. Earlier this August, Iran offered a price of $8 per millionBritish thermal units (MBTU) to Pakistan and India, which was double of what they werewilling to pay (about $4.25 per (MBTU). The initial pricing formula Iran had forwardedhitherto linked the gas price to Brent Crude Oil with fixed escalating cost component (10 per cent of Brent Crude oil) of $1.2 per mBtu to the Pakistan-Iran border. The Iranianformula did not prescribe a floor and ceiling for the gas price either. Pakistan rejected theformula, to which India followed suit calling it “unacceptable”.A UK-based consulting firm Gaffney Cline was appointed by the mutual consent of allthree countries to facilitate them in setting a new price mechanism to sort out the issue.Albeit, Iran is one of the leading producers of gas in the world, it is in desperate need to boost exports to stabilize the faltering economy, and South Asia serves as the perfectmarket for this purpose. If the deal comes through Pakistan would also have the option of exporting gas to the international market, or even siphon out gas for domestic purposes.Pakistan whose demand for gas is expected to grow substantially in the next two decadescan earn as much as $500 million in royalties from transit fee for the gas and pipeline inaccordance to international standards, and save $200 million by purchasing cheaper gasfrom this project.Four major companies have expressed interest in constructing the IPI gas pipeline: BHP(Australia), NIGC, Patrons (Malaysia) and Total (France). A consortium consisting of Shell, British Gas, Patrons and an Iranian business group is presently negotiating on thelogistics of exporting gas from South Pars, Iran to Pakistan. Also involved is the Iran National Gas company and the Gas Authority of India Limited The Sui Northern GasCompany (SNGC) has also joined the big names showing interest in the tripartite gas
 
 pipeline, and recently announced that it would lay down 800km of the pipeline, whichwould have an estimated cost of $1.6-2 billion.The government views the pipeline to be a pact with Iran, where India is an additionalmember, and wants to go on with the project even if India does not join. This can beconnected to the hostile relationship the two countries have. But economic collaborationssuch as these would certainly sow the seeds of mutual co-operation and alliance.Both Benazir Bhutto and Nawaz Sharif’s governments halted the projects because of reservations in the army on the type of impact this project would have on the regionalissues of Kashmir and the government’s position on bilateral trade with India. India onthe other hand accused Pakistan of funding and aiding ‘fundamentalists’ who weredisrupting supplies, and also believed that the pipeline placed Islamabad at a strategicadvantage where it can “shut off the tap” in times of crisis or conflict. Nine years ago in a meeting with the then president of Iran, Mohammad Khatami in NewYork in September 2000, and President Musharraf termed the development of the pipeline and the country’s natural gas reserve as “the country’s economic salvation”which will “break an age old dependence on cotton textiles as Pakistan’s main exportearners”.Pakistan and Iran on Monday initiated technical talks on draft of the operationalagreement under the IP gas pipeline project.“In the marathon six-hour long meeting, experts from both sides deliberated upon eachword and clause of the proposed operational agreement draft,” a reliable source, who was part of the talks, told The News. He, however, refused to divulge any further details,saying that talks would continue for another three days or so, adding that nothing wasfinal as yet and therefore could not be shared with the media.The five-member Iranian team was led by Iran’s Director Gas Exports, while the six-member Pakistan team was headed by Managing Director Inter State Gas System Hasan Nawab. In the coming rounds of these negotiations, Pakistan and Iran will also hold talkson Conditions Precedent (CPs), which are prerequisites before making the gas sales purchase agreement effective that both Islamabad and Tehran have already signed inIstanbul. Under the gas sales purchase deal, Pakistan is bound to submit some conditions precedent before September 5, otherwise the deal could elapse. However, the date for finalising the conditions precedent can be extended, one time only, through mutualagreement. Under the CPs, Pakistan will have to submit a Performance Guarantee and aComfort Letter. Hasan Nawab, MD ISGS, who is the focal person on all issues pertainingto IP gas pipeline when contacted said the experts of both the sides had discussed thestandards and codes of the engineering that would be utilised in constructing the IP gas pipeline. “The standards and codes of the engineering would be the same for the whole IPgas line.”“Although the pipeline will be constructed under the segmented approach under whichIran will construct the pipeline in its area and Pakistan will construct in its own area fromIran border to Nawab Shah, but factually the pipeline will be the same from Paras field(Iran) to Nawab Shah (Pakistan).”He said such meetings at operational level wouldcontinue and that officials of both the countries would meet again after Eidul Fitr. On theissue of comfort letter, the source said as per this letter, the government of Pakistan wouldhave to allow a third country to import gas through IP pipeline in the event of any such

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