US sanctions ‘may not apply’ to IP project

Interim energy minister says currently Pakistan not connecting pipeline with Iran

ISLAMABAD:

Pakistan on Tuesday said the US sanctions might not apply to Iran-Pakistan (IP) gas pipeline project at a stage when Islamabad was going to lay pipeline within its territory and not connecting it with the neighbouring country.

“I don’t think that the US sanctions can apply to the IP project at this stage,” caretaker Energy Minister Muhammad Ali responded to a question during a news conference in Islamabad.

Experts say that Pakistan’s decision to kick off work on the gas pipeline project in its territory is a tactic to defer a penalty.

When asked about the US sanctions, the interim minister replied that he was unaware of what the Americans wanted in connection with the IP gas pipeline project.

However, he said currently work on 80 kilometres of the pipeline in the Pakistani territory would be carried out.

He added that it would take around 1.5 years to complete the pipeline project in the Pakistani territory.

“It will take time to connect it with the Iranian side for the supply of gas.”

Also read: Cabinet body okays IP project’s 1st phase

Giving details, the caretaker minister explained that Pakistan had signed an agreement with Iran for a gas pipeline in the year 2009 and was bound to complete the project under the arrangement.

The caretaker set-up is going to leave the next government with a legacy of a gigantic circular debt of Rs5.42 trillion in the energy sector, while the capacity payments to the independent power producers (IPPs) have hit Rs2 trillion.

The interim minister said currently the principal circular debt of the petroleum sector stood at Rs2.30 trillion including the interest of Rs3.022 trillion.

He continued that for the power sector, the principal circular debt had accumulated to Rs2.40 trillion.

However, he maintained that the accumulation of the circular debt had been stopped with various interventions undertaken by the interim government.

The total overdue amount of the Chinese IPPs, under China-Pakistan Economic Corridor (CPEC), is Rs511 billion.

The power sector’s circular debt has been contained within the International Monetary Fund’s (IMF) target of Rs385 billion for the end of December 2023. This has resulted in the stock settlement of 35% petroleum and 10% power sectors circular debts.

The anti-power theft campaign in all distribution companies was initiated in September 2023. This has resulted in the recovery increasing by 2%, translating into Rs54.6 billion till January 31 this year.

The interim minister elaborated that the total impact amounted to Rs67.4 billion. Similarly, he claimed that line losses had decreased as a result of a campaign, translating into a benefit of Rs12.8 billion.

Muhammad Ali further said out of the total energy cost of Rs3.2 trillion, around a sum of Rs2 trillion was in terms of capacity payments to IPPs.

On the privatisation of the state-owned power distribution companies, the interim minister informed the media that the cabinet’s approval had been received for the private sector’s participation in operations of two of them -- Hyderabad Electric Supply Company (Hesco) and Gujranwala Electric Power Company (Gepco) through long-term concession agreements. He continued that this would eventually lead to the privatisation of the state-owned power distribution companies.

Also read: IP gas pipeline delay may lead to $18b fine on Pakistan

However, he maintained that no sale of government assets was involved in the process -- backed by successful precedents in countries including Turkey, Argentina, Brazil, and Uganda.

The interim minister said that the installation of around 700-km optical fiber on transmission lines in SCADA-III project had been completed by the National Transmission and Despatch Company (NTDC)

He warned that without substantial investments in indigenous energy resources and efficiency measures, the nation could face a staggering expenditure of $60 billion on importing petroleum products within the next two decades -- a significant leap from the current $17.5 billion.

The caretaker minister emphasised the crucial need to ensure the availability of indigenous fuel through enhanced domestic production and refining to achieve affordable and secure energy.

Muhammad Ali said the caretaker government had introduced the Tight Gas (Exploration and Production) Policy 2024. He explained that the policy focused on an innovative pricing strategy to encourage efforts in exploring and producing unconventional hydrocarbon reserves.

He added that the policy aimed to invigorate the existing exploration and production companies to intensify their endeavours.

Additionally, the interim minister continued that amendments were incorporated into the Petroleum Exploration and Production Policy 2012 to adapt to the changing market conditions and promote investment in the energy sector.

In a briefing, an official of the Petroleum Division said efforts to revive dormant wells and reignite similar discoveries had become vital strategies, with recent advancements emphasising this approach.

The notable achievements in this connection included the injection of 152 million cubic feet per day (mmcfd) of gas, the drilling of 22 wells, as well as the revelation of six new oil and gas findings.

Furthermore, on January 24 this year, the interim government executed the petroleum concession agreements (PCAs) and exploration licences for eight oil and gas blocks.

The Cabinet Committee on Energy (CCoE) recently approved the additional enhancements to the current brownfield refining policy.

The policy is aimed at encouraging local refineries to undertake upgrading projects.

Incentives have been extended, including funds covering 27.5% of project costs and a tariff protection mechanism.

These measures seek to provide financial as well as regulatory support to incentivise refinery upgrades and enhance the overall sector efficiency.

The revised refining policy is anticipated to facilitate a $6.5 billion investment in upgrading five local refineries, leading to the production of environmentally friendly Euro-V-compliant fuels and a significant increase in local production capacity.

In efforts to bolster domestic gas production, Pakistan anticipates adding 280 million cubic feet per day (mmcfd) by the end of the ongoing year.

A comprehensive strategy has been devised to tap into various reserves across the nation, with key milestones already achieved.

Additionally, Pakistan's energy sector is advancing with key projects under way including the IP gas pipeline project and Pak-Stream Gas Pipeline Project (PSGP).

Efforts are also under way to establish Strategic Underground Gas Storages (SUGS), enhancing energy security and infrastructure.

The recent approval of the recommendations made by the Ministerial Oversight Committee signals a commitment to advancing energy projects, with a focus on the initial 80-km segment of the IP pipeline within Pakistan. The project, managed by the Inter State Gas Systems (ISGS) and funded through the Gas Infrastructure Development Cess (GIDC), is set to extend from the Iranian border to Gwadar in the first phase.

The ministry also mentioned the recent developments in Pakistan's mineral sector including significant discoveries following geophysical surveys and chemical analyses.

A memorandum of understanding (MoU) worth $200 million has been signed between Pakistan Mineral Development Corporation (PMDC) and Miracle Salt in US, focusing on pink salt processing.