Even as the United States legislature continues to threaten sanctions against Tehran, Pakistan’s National Electric Power Regulatory Authority on Tuesday approved in principle a project to import 1,000 megawatts of electricity from Iran, though it left unresolved the question of how to pay for this electricity.
Iran currently supplies power to Pakistan, with 73MW available for Gwadar, at approximately Rs6.25 per kilowatt-hour. The new agreement would supply 1,000MW of electricity to Quetta and other parts of Balochistan at between Rs8 and Rs10 per unit.
In its desperation to be able to earn revenue from its vast energy resources, Tehran has agreed that its state-run electricity company, Tavanir, will set up a 1,300MW power plant in Zahedan, on the border with Pakistan, dedicated to providing power to the Pakistani side of Balochistan. Iran has also agreed to provide 70% of the financing needed for the Iran-Pakistan electricity transmission line.
The decision to approve the project from the Pakistani side was taken by Nepra chief Tariq Sadozai and was met with praise by several other members of Nepra, including Khwaja Naeem, who praised the National Transmission and Dispatch Company (NTDC) for being able to secure favourable terms from Iran. Nepra raised no objections to the tariff agreement negotiated by NTDC.
The feasibility study for the project was jointly completed by Nespak, the state-owned engineering firm, and Moshanir, its Iranian counterpart. The plan called for a $700 million high-voltage direct current transmission line, with two converter/inverter substations at either side. The cost of the new Zahedan power plant is not included in the cost of the project as that is something that Tavanir is willing to bear on its own.
Tavanir has agreed to finance the transmission line on Iranian territory at a cost of approximately $265 million. The transmission line from the border to Quetta will be constructed by Pakistan. Both sides have agreed to use the existing agreement to supply electricity to Gwadar – signed on February 7, 2007 – as the basis of the agreement to supply 1,000MW to Balochistan.
The advantage of the new transmission line is that it is expected to reduce transmission losses to around 2% of the electricity purchased by Pakistan and the supply of uninterrupted electricity to a part of the country that is often used to more than 20 hours without power every day.
The question of how Pakistan would pay for this electricity, given US and European sanctions against several Iranian energy companies including Tavanir, remained unresolved at the Nepra meeting, though most Nepra members appeared to think that it would not be a problem. The State Bank of Pakistan has refused to allow any Pakistani bank – including those that have branches in Iran – to do business with Iranian energy companies or finance any trade transactions with Iran, for fear that US and European sanctions might be extended to the Pakistani banking system and prevent the country from using US dollars and Euros to conduct international transactions.
Nepra deferred discussion of the payment mechanism until after global sanctions against Iran are lifted, though it is not clear if there is a timeline as to when that would be the case. Previous Pakistani governments have had a much more cautious attitude about dealings with Iran. In 2012 the then-Water and Power Minister Ahmad Mukhtar fired the then-NTDC Managing Director Rasul Khan Mehsud, who initially signed a memorandum of understanding with Iran for the import of 1,000MW, soon after Mehsud returned from Iran.
Published in The Express Tribune, March 11th, 2015.