Good tidings: Iran deal brightens IP gas pipeline prospects

Foreign Office hails accord; senate panel discusses impact of nuclear deal on the project

ISLAMABAD:

Pakistan has welcomed the landmark nuclear deal signed between Iran and global powers in a move that Islamabad hopes will help remove Western sanctions against doing business with Tehran, the biggest obstacle hindering the completion of the multibillion-dollar Iran-Pakistan gas pipeline project.

“Pakistan welcomes the important comprehensive nuclear agreement reached between the Islamic Republic of Iran and the P5+1,” said Foreign Office spokesperson Qazi Khalilullah, hours after the historic agreement. The P5+1 refers to the five permanent members of the United Nations Security Council – the United States, Britain, France, China, Russia – plus Germany.

As an ally of Western powers, but also a neighbouring country of Iran that sees Tehran as a potential major supplier of cheap energy, Pakistan’s diplomatic stance on the matter has always been a delicate balancing act. “As a neighbouring country, we have also reiterated that reciprocal confidence-building measures relating to Iran’s nuclear programme auger well for peace and security in our region,” Qazi said.

Read: Iran, big powers clinch landmark nuclear deal

Within hours of the announcement of the deal, a discussion was under way in a Senate panel in Islamabad about how the deal would affect economic ties with Iran, specifically the fate of the IP gas pipeline. At a meeting of the Senate Special Committee on Gas Infrastructure Implementation, Petroleum Minister Shahid Khaqan Abbasi sounded an optimistic note about the project with the expectation of sanctions being lifted against Tehran.



“It is our international commitment that we will connect the gas pipeline with Iran. From the Gwadar side we have already started it. With the [expected] relaxation of sanctions, both [Pakistan and Iran] will conclude work on the gas pipeline,” said Abbasi, responding to questions from senators about why work on the gas pipeline had been halted.

Pakistan faces a massive shortage of natural gas as the gap between demand and supply often exceeds 2,000 million cubic feet per day (mmcfd). The IP gas pipeline would supply 750 mmcfd at rates cheaper than the liquefied natural gas (LNG) Pakistan would most likely begin importing from Qatar. Work on the badly needed pipeline, which was supposed to have commenced operations by December 2014, was halted under intense US pressure, as well as internal fears within the Pakistani banking system that failure to comply with US and European sanctions would result in the country being cut off from the global financial system.

As a result, Pakistan began an alternative plan, building an extended pipeline that would connect Gwadar to the natural gas pipeline hub at Nawabshah.

This new pipeline, meant to transport imported LNG from Gwadar port to the northern parts of the country, would have the potential to be extended to Iran once the sanctions were lifted. Iran tacitly agreed to this plan, and has not yet pressed any late fees on Pakistan for failing to complete the project on time.

“Pakistan never stopped work on this project but sanctions against Iran remained a major stumbling block in executing the project,” said Abbasi.

Combined, the two projects are expected to have a cost of Rs1 trillion ($9.9 billion). “We are hopeful to start work on the Gwadar LNG pipeline in September this year from Nawabshah,” Abbasi told The Express Tribune.

At this early stage, it is not yet clear how soon the sanctions would be lifted, a fact that the minister took note of. “We will have to see the modalities of lifting sanctions against Iran, whether they are lifted in phases or in one go,” he said.

GIDC bill

The Senate committee also discussed the gas infrastructure development cess (GIDC). Abbasi told the lawmakers that the government has stopped collecting the GIDC from consumer gas bills for the last three months, as a result of which it has only been able to achieve half its Rs272 billion collection target.

Read: IP gas pipeline: Iran threatens to slap penalties for delays

The committee will take up the GIDC bill after Eid. Lawmakers in the Senate have already criticised the government, urging it to present the bill in the Council of Common Interest (CCI) for consultation with the provinces before its passage. Abbasi told lawmakers that Rs100 billion would be collated annually through this levy and it would be used for gas infrastructure, adding that no province is self-sufficient in gas.

 

Published in The Express Tribune, July 15^th, 2015.