ISLAMABAD: A fresh offer to supply Pakistan with 3,000 megawatts of electricity has hit the same snags as previous attempts to import energy from Iran, amid growing realisation that US and European sanctions against Tehran make it virtually impossible for any project to get off the ground until the sanctions are lifted.
Government officials told The Express Tribune that the original idea was proposed by a Dubai-based company called Al Auqili Group, LLC in 2014. However, that group has since backed out of the project. In April 2014, The New York Times reported that the Al Auqili Group and two of its directors were placed on a blacklist by the US administration for their previous attempts to evade sanctions against Iran.
At a meeting of the Cabinet Committee on Energy on February 12, officials from the water and power ministry told Prime Minister Nawaz Sharif that the ministry had been trying to find other investors to take up the project. However, they admitted that progress on the matter would not be possible until international sanctions against Tehran were removed.
The key problem appears to be making payments to Iran, whose financial system is completely sanctioned by the US and EU, which makes all Pakistani banks unwilling to process payments to Iranian energy companies. Pakistan already has a small agreement with Iran to import 73MW of electricity to serve the needs of Gwadar, but has been unable to make payments to Tavanir, the Iranian power company, since 2011, which is when sanctions against Tehran were toughened.
The government is now trying to figure out how to make payments for those electricity imports. At a meeting of the Economic Coordination Committee of the Cabinet on August 26, 2014, water and power ministry officials examined the Turkish and Indian models of evading international sanctions on Iran. Turkey pays for its gas imports from Iran in gold, while India imports oil from Iran and uses an Indian bank – with virtually no ties to the world outside India – to make payments to Iranian oil companies.
The US has made an exemption for the Indian entities involved in oil imports from Iran, because Washington is pursuing a closer relationship with India. Such courtesies were not extended to Islamabad.
The outstanding bills for electricity imports from Iran now stand at over $100 million, but the government has not yet made progress on any mechanism to clear those arrears. The State Bank of Pakistan has prohibited any Pakistani banks from doing business with Iran for fear of losing access to the US and European capital markets for the whole country.
The contract with Iran goes back to November 6, 2002, when the Water and Power Development Authority (Wapda) and the Power Generation and Transmission Management Company of Iran (Tavanir) entered into a three-year contract to import 32 MW of electricity for Gwadar at a rate of $0.03 per kilowatt-hour (kWh). The contract was extendable for up to 30 years and was later expanded first to import 39MW at $0.05 per unit in 2005 and then to 74MW at $0.0625 per unit in 2009.
Published in The Express Tribune, February 22nd, 2015.