Work on IP pipeline to begin in Pakistan

Islamabad has engaged Tehran by committing to complete the first phase of the 80-kilometer Iran-Pakistan (IP) gas pipeline project within Pakistan’s territory to avoid a looming $18 billion penalty. According to reports, Iran has granted an extension in the deadline of the IP gas pipeline project by 180 days until September 2024.

Tehran has granted this extension in a bid to avoid litigation in international court. Experts suggest that Pakistan and Iran could face strained diplomatic relations if Iran files a case against Pakistan in an international court. Iran could pursue legal action to safeguard its rights concerning the pipeline project.

Now, Pakistan has decided to proceed with the construction of the IP gas pipeline within its borders to satisfy Tehran, despite the sanctions imposed by the United States.

Sources indicate that the Petroleum division is seeking approval from the cabinet to commence work on the IP gas pipeline project in Pakistan. Additionally, the Board of Gas Infrastructure Development Cess (GIDC) has been directed to expedite the financing process for the project.

Recently, the Economic Coordination Committee (ECC) referred a case of fertiliser manufacturers to the Competition Commission of Pakistan (CCP) to investigate the unjustified increase in urea prices. The caretaker government also withdrew the subsidy on feedstock provided to fertiliser manufacturers.

Sources reveal that the government is displeased with these manufacturers who have accumulated billions of rupees from farmers under the guise of GIDC, which was intended for mega pipeline projects like IP, Turkmenistan–Afghanistan–Pakistan–India (TAPI), and Liquefied natural gas (LNG) pipelines. However, they failed to deposit the money into the national exchequer and obtained stay orders from various courts, refusing to pay despite the Supreme Court’s decision.

Currently, the government requires funds from the GIDC collection, which has amounted to over Rs350 billion. However, this money has been allocated to projects like the orange train and has not been utilised for pipeline projects.

Industrialists such as fertiliser manufacturers have refused to pay over Rs450 billion. During the tenure of the Pakistan Tehreek-i-Insaaf (PTI) government, a 50% amount was waived off, but the Supreme Court directed payments in instalments. Nevertheless, the fertiliser manufacturers did not comply and obtained stay orders from lower courts.

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Iran claims to have already spent $2 billion to complete its part of the pipeline within its territory. In contrast, Pakistan has not even commenced construction.

Previously, constructing the 80km portion of the IP pipeline project was part of the LNG Gwadar Pipeline project, intended to connect Gwadar with other parts of the country. It was agreed that Pakistan could construct this portion if relations between Tehran and Washington normalised and Pakistan was granted a waiver.

However, due to mounting pressure from Iran, Pakistan has now opted to build a portion of the IP gas pipeline project within its territory.

Earlier, under pressure from Saudi Arabia, the Pakistan Muslim League-Nawaz (PML-N) government decided to shelve the LNG Gwadar Pipeline. At that time, Pakistan considered constructing the 80-kilometer pipeline if the situation between the US and Iran stabilised.

In 2017, Saudi Arabia engaged in a diplomatic dispute with Qatar, pressuring Sharif’s government to abandon both the Iran-Pakistan gas pipeline and the LNG contract with Qatar. Pakistan, however, only shelved the LNG Gwadar deal, which was deemed part of the IP gas pipeline project, and continued the LNG deal with Qatar.

The petroleum secretary previously informed the Public Accounts Committee (PAC) that Pakistan faced the threat of $18 billion in claims due to the failure to commence construction on the IP project.

Historically, Pakistan and Iran have enjoyed good relations, particularly during the reign of the Pakistan People’s Party (PPP). During Asif Ali Zardari’s presidency, both countries signed a Gas Sales Purchase Agreement (GSPA), binding Pakistan to commence construction on the IP project. In the past, Pakistan imported Iranian oil – the supply, however, ceased in 2010 when Pakistani refineries failed to make payments. Although payment was never a significant issue between the two nations – both had worked out currency swaps and barter trade arrangements – experts believe the primary reason for the fallout was the US’s reluctance to show flexibility regarding oil and gas trade between Pakistan and Iran.

Published in The Express Tribune, February 20^th, 2024.

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