The Iran-Pak pipeline: Who’s funding this project anyway?

Iran is unable to pay its own debts worth millions; how will it fund the pipeline? Is this worth offending the US?

Adnan Farooqui March 19, 2013
The Iran-Pakistan pipeline formerly known as the Iran-Pakistan-India pipeline was conceptualised in 1989 to supply India with hydrocarbon resources.

Pakistan was set to play only the role of a transiting state as the need for natural gas in the country were substantially lower than what they are today. However the matter was brought to a standstill due to unstable relations between India and Pakistan, it was only after Pakistan agreed to give a sovereign guarantee to India did the matter progress.

By this time Iran, due to its nuclear program, was pressured by the United Nations Security Council via sanctions and embargoes. In 2009, India withdrew from the project. This however, was done after signing a civilian nuclear deal with the United States in 2008; my guesses are that this was more of a ploy to avoid US sanctions. However Pakistan’s interest in the project grew due to the extreme shortfall of gas supply in the country.

On January 30, 2013, the Pakistan’s federal government approved a deal with Iran for laying the Pakistan’s segment of the pipeline. On February 27, 2013, the construction of the Pakistani section was inaugurated.

The funding of the project is set at an estimated $1.5 billion, several options were considered to raise the funds, at one point the National Bank of Pakistan guaranteed delivery of the said funds.

According to the Security Council’s Resolution 1803 (2008), sanctions will be levied on individuals and entities directly or indirectly involved in actionable practices with Iran.

Hence NBP citing operational constraints internationally backed out from the commitment.

Similarly the Export-Import Bank of China showed interest in the matter but later retracted citing similar concerns hence, leaving Pakistan to finance the project as a sovereign nation.

Recently, Iran agreed delivery of $500 million for the project, however in recent developments the country has found itself unable to pay trade debts worth millions of dollars to both India and Ukraine.

The remaining $1 billion is to be generated through the Gas Infrastructure Development Cess (GIDC) from gas consumers, but the Islamabad High Court (IHC) declared the GIDC illegal, unconstitutional and in violation of fundamental rights.

All the above leads me to doubt the credence of the matter and what further enforces my qualm is the timing of the issue, where Iran has found itself alone fighting a war of sanctions against the security council.

The country seeks to alleviate the emotional state of its general public by showing hope in Pakistan. Furthermore the ruling party in Pakistan finds it opportune to regain its lost credibility nearing its dissolution and upcoming elections.

It seems as if we are setting ourselves up for disappointment, Pakistan is already suffocating due the state of its Balance of Payment (BoP) and may soon have to go back to the International Monetary Fund (IMF).

As foreign exchange reserves are slipping to alarming levels and we can only print so much money, can we really risk offending the world’s greatest power or are we just looking for a better deal with the United States following which we will pull the plug on our neighbouring state?

Only time and finances will tell.
WRITTEN BY:
Adnan Farooqui A Research Analyst with JS Investments Limited, prior to which he worked as an Analyst for The Business Recorder. He has an undergraduate degree in Finance from the Institute of Business Administration and is also a CFA level 2 candidate. His writings focus on financial markets, political, macroeconomic and business sector analysis.
The views expressed by the writer and the reader comments do not necassarily reflect the views and policies of the Express Tribune.

COMMENTS (62)

Hasan Mehmood | 8 years ago | Reply @jamshed kharian-pak: Thanks for shedding light on a lesser known aspect of Iranian development. On a recent visit, I was frankly intimidated by the sheer resolve / focus of Iranian leadership and society. The top clergy has declared Jehad in knowledge / technology acquisition as number one priority. (compare with our clergy). After assasination of their top nuclear scientist, 400 PHD students switched to nuclear engineering as a sign of solidarity. All this inspite of the most crippling form of sanctions.
jamshed kharian-pak | 8 years ago | Reply § @Leila what you write about Ir Iran & Ir Pakistan is 100p true with respect and honesty i Recognised all there is no comparaison Ir Pakistan is no where near to Ir Iran economicaly and many all other domeins the english elits in pakistan are mis leading pakistan's 50p unalphbet populations i as a pakistani dont feel shame to admit and fully recognised this 100p true verity and reality! in very few comming years Ir Iran will be the top 15 most rich and developed countrie in the world there is no doubt if some one dont understands or recognised he must be an USA or pro USA persone! because USA cant do any thing they wanted in the middle east because Ir Iran is very powerful economicaly and militarly Ir Iran bring new political system called Islamic democracy based on Shariat laws it mean Muslm Lwas are in force this is not the case in our pakisan after 64years our political system is stil based on english education justice police army health practicaly every thing is english and some peoples are blaming that pakistan is not working advancing due to Islamic religion surprised me always Ir Ira's help is very welcome in all domains! elctricity DAM Buildings! Gas related industry satlite lauching Ir Iran will send a man based MAN based mission around 2019 most may country men even dont know it! we pakistanis are lucky to have neighbor like Iran but we must not be bliend akh putt lahore aya hi !!! long live Ir Pakistan Ir Iran ZINDABAAD
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