After failing to get Iran-Pakistan (IP) gas pipeline exempted from US sanctions, Prime Minister Nawaz Sharif is set to ask Tehran during an upcoming visit to waive penalty following delay in work and revise the agreed deal.
In case of disagreement, the two countries may land in the international court of arbitration to settle the matter, sources say.
In addition to this, Pakistan and Iran will sign a 3,000-megawatt power supply deal during the premier’s trip slated for May 11-12.
Pakistan is already importing 73MW from Iran to meet the needs of Gwadar, but has not been able to clear outstanding payments, a process impeded by US sanctions against Iran for its alleged nuclear programme, which Tehran vehemently denies, that blocks transactions through banks.
The US has already refused to exempt the IP pipeline from sanctions, triggering uncertainty about the future of the project.
Though Tehran has signed a preliminary nuclear deal with the US and other western powers, Washington insists that it has not changed its stance on the IP pipeline.
Pakistani authorities had taken up the project with US officials in a meeting on the sidelines of the bilateral strategic dialogue in Washington in November 2013. However, the US did not give assurances that the project would not invite any sanctions.
The US has been pushing Pakistan to shelve the IP project and opt for Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline and Central Asia-South Asia (CASA) 1,000MW power import project to meet its energy needs. It has also offered assistance in liquefied natural gas (LNG) import, but is not willing to commit its own LNG supplies.
A month later, Petroleum and Natural Resources Minister Shahid Khaqan Abbasi visited Iran on December 9 and told officials there that Pakistan could not begin work on the IP pipeline until US sanctions were lifted.
According to officials, the prime minister will again try to convince the top leadership of Iran’s new government that US restrictions are a major stumbling block in the way of the pipeline. Therefore, Tehran should be soft and waive penalty as well as extend the project completion deadline from the current December 2014.
Officials point out that Pakistan would have to face a penalty of $3 million per day if it dithers and fails to put the required project infrastructure in place on time. They suggest that the dispute may also take the two sides to the international court of arbitration if the penalty is not waived.
Officials argue that the standoff between the US and Iran has stalled the project and Pakistan could not be blamed for the delay, which is very much likely in such circumstances.
Tehran would also be informed that Islamabad had also tried to secure financing for building its part of the pipeline, but even China, a close friend of Islamabad, backed out in the face of the sanctions threat.
Even the new government of Iran also withdrew a $500-million financing offer given by the previous government, which led to termination of the contract awarded to Iran’s Tadbir Energy for pipeline construction.
According to a report prepared by the petroleum ministry, if furnace oil is replaced with imported gas, it will result in annual savings of $2.4 billion.
Published in The Express Tribune, April 22nd, 2014.