Wednesday, March 17, 2010

Iran-Pakistan pipeline inches nearer reality

Iran-Pakistan pipeline inches nearer reality
By Syed Fazl-e-Haider

India now plans to buy gas from Iran via deep-sea

KARACHI - Islamabad and Tehran have signed an operational agreement on the Iran-Pakistan (IP) gas pipeline project, a month after the signing was delayed because Pakistan was unable to arrange funds for the project.

The countries signed a "heads of agreement" and certain "condition precedents" to make the gas sales purchase agreement (GSPA) signed last June effective. The signing of these agreements was required for the flow of Iranian gas towards Pakistan to begin in three to four years.

The pipeline as initially mooted was to carry gas from Iran to Pakistan and on to India. India withdrew from negotiations last year over disagreements on price and transit fees, but it is still open for the country to joint the agreement.

The United States, Pakistan's largest aid donor, is reluctant to help Islamabad proceed with the multi-billion dollar pipeline because of the participation of Iran, perceived in Washington as seeking to build nuclear weapons. Some analysts believe that financial sanctions on Iran may delay but not force the cancellation of the pipeline, as China is also keen to join the project. Beijing may provide financial assistance to Islamabad to get the project started.

Under the GSPA, Iran will provide 750 million cubic feet of gas per day to Pakistan for the next 25 years. Initially, an offshore pipeline was proposed, but the present plan is for an overland route from the South Pars fields in southern Iran.

Pakistani President Asif Ali Zardari and his Iranian counterpart, Mahmoud Ahmadinejad, signed a US$7.5 billion agreement in Tehran last May, finalizing the deal to transfer gas from Iran to Pakistan. Iran will initially send 30 million cubic meters of gas per day to Pakistan, to be increased to 60 million cubic meters per day.

Each country will be responsible for building the section of pipeline that runs through its own territory. The Pakistan government had been unable to allocate proper financing and the US is not willing to give financial assistance in this regard, DawnNews reported, citing sources from Pakistan's Ministry of Petroleum and Natural Resources.

The US has previously pledged all-out support in ensuring energy security for Pakistan, which suffers long and frequent blackouts amid an electricity shortfall of more than 3,000 megawatts. US companies, such as Carlyle Group affiliate 4Gas, Oklahoma-based Walters Co, and Global Edison, plan various energy-related projects in the country.

Critics say that the US interest in resolving Pakistan's energy crisis is an attempt to foil the Iran pipeline project.

Beijing is interested in building a pipeline from Iran via Pakistan into China to secure an overland energy corridor less liable to interruption by US or other forces at times of international tension while also cutting out the 20,000 kilometer tanker route around the southern rim of Asia. Critics say that by opposing the IP project, the US is also trying remove this option for China.

China at present appears to be the sole country holding out against sanctions against Iran over its nuclear policy of the five veto-wielding members of the UN Security Council (the others are United States, Russia, Britain and France). The need for Iranian oil and gas is making it difficult for Beijing to agree with Washington on its stance against Tehran, according to a report in Dawn last month. Approving sanctions against Iran would mean the loss of 10% to 12% of China's oil imports and of hundreds of billions of dollars worth of oil locked into futures contracts, while also ending about $80 billion in Beijing-backed development projects in Iran. If China joins the project, the pipeline would pass through Pakistan's Northern Areas, now known as Gilgit-Baltistan, and into China via the Khunjerab Pass. The pipeline would roughly parallel strategic transport links China is developing between its remote western regions, including Xinjiang, and Gilgit-Baltistan.

India today said it has proposed trilateral talks in May with Iran and Pakistan on the multi-billion dollar gas pipeline to address its security and other concerns, two days after Tehran and Islamabad went ahead with a bilateral deal for the project.

"... As far as India is concerned, we are in consultation with the government of Iran. We have certain concerns. Concerns about pricing, concerns about security, which have been taken up with the government of Iran,"
External Affairs Minister S M Krishna said here.

Pakistan on Tuesday signed a USD 7.5 billion deal with oil-rich Iran, paving the way for laying the much-delayed natural gas pipeline that was originally envisaged to extend up to India. However, it was not clear whether the deal was about Gas Sales and Purchase Agreement that allows gas sale at agreed terms and without which no transaction can take place.

"We have genuine issues that need to be addressed before we sign up for the (Iran-Pakistan-India) pipeline. We have proposed dates in May for technical level talks in Tehran to iron these out,"
Oil Secretary S Sundareshan told PTI here.

New Delhi has been boycotting project talks since 2008 after its concerns of safe delivery of gas were ignored. It wants Iran to be responsible for uninterrupted supply of gas through the 1,035-km pipeline length in Pakistan and would pay for the fuel only when it is delivered at Pakistan-India border.

Iran, on the other hand has suggested a trilateral mechanism, meaning contractual provisions between three countries, to ensure safe delivery of gas to India. Under this system, New Delhi pays for its share of gas even if the supplies were to be disrupted in Pakistan, officials said.

Officials said Tehran has been insisting that ownership of gas would be transfered at Iran-Pakistan border while New Delhi wants it to be Pakistan-India border thereby making Iran explicitly responsible for safe delivery of gas.

Noting that India was currently not part of the deal, Pakistan Petroleum and Natural Resources Minister Syed Naveed Qamar, in a statement in Islamabad, has said the heads of agreement dealt with transporting gas meant for India through Pakistani territory if and when India decided to join the project.

India has been apprehensive towards the project as the pipeline will pass through the volatile region of Balochistan and the surge in militancy in Pakistan has only increased India's security concerns about the pipeline....


Knowledgeable Pakistani sources have reported China’s interest in investing $2.5 billion in the Iran-Pakistan pipeline.

Iran and Pakistan are hoping that Chinese interest and investment will spur much-delayed progress on the Iran-Pakistan (IP) gas pipeline, originally planned as the Iran-Pakistan-India (IPI or “Peace”) pipeline. China's possible involvement in the pipeline became critical after India appeared to back out of the project in 2009, since gas sales to Pakistan alone would not suffice to make the pipeline profitable for Iran. Although China has said little publicly about the pipeline, Iran and Pakistan can use reports of Chinese interest to pressure India into rejoining the project. New Delhi, in turn, will have to balance US pressure to abandon the project with Iran, against India’s growing domestic energy needs.

The "Peace" Pipeline

  • The $7.5 billion project is designed to supply natural gas from Iran’s portion of the South Pars gas field to the energy-hungry Pakistani and Indian markets. Pakistan is already facing an energy crisis which is expected to grow worse in the next few years.
  • The IPI pipeline would run 2,775 kilometers (approximately 1,724 miles) from the Iranian port of Assalouyeh on the Persian Gulf, through Khuzdar (with a branch to Karachi) and Multan in Pakistan, to New Delhi.
  • When completed it would supply 60 million cubic meters of gas per day to Pakistan, and 90 million cubic meters of gas daily to India.
  • Tehran and Islamabad’s negotiations with New Delhi over the pipeline stalled over India’s concerns about security along the pipeline’s route, which traverses Pakistan’s volatile Baluchestan region; price and payment disputes with Tehran; the potential for domestic instability in both Iran and Pakistan; and US pressure on New Delhi to withdraw from the project.
  • The United States is backing an alternative pipeline to India: the Turkmenistan-Afghanistan-Pakistan-India (TAPI) or Trans-Afghanistan (TAP) pipeline, which would circumvent Iran altogether. Development of the Trans-Afghanistan pipeline project, however, has been hampered by the ongoing insurgency in Afghanistan.

China and the IPI: Risks and Rewards

As with other segments of Iran’s energy sector, Iran is hoping that Chinese interest in the IPI pipeline will offset the geopolitical difficulties which have stymied Iranian oil and gas development. Iran’s Foreign Minister, Manouchehr Mottaki, even announced in February that China was ready to join the IPI. Mottaki’s announcement notwithstanding, Beijing has given no indication that it is ready to sign on to the pipeline. China may in fact be “feigning interest” in the IPI pipeline to negotiate better terms with Russia on “safer” Siberia-China pipelines.

For China, the IPI pipeline carries just as many risks as rewards. By joining the pipeline project, China can continue to diversify its energy sources, strengthen Sino-Pakistani relations, and add to its so-called “string of pearls”—comprising a line of Chinese "geopolitical influence or military presence" extending from Southeast Asia to the Middle East. On the other hand, in addition to the political and security concerns attached to the project, adding China to the IPI would entail extending the pipeline by more than 1,000 kilometers over complex and difficult terrain. This, in turn, raises serious doubts about the feasibility and profitability of Chinese involvement.

Playing Cards: Using the Sino-Indian Rivalry to Pressure New Delhi

Iran and Pakistan are using reports of Chinese interest in IPI—whether real or imagined—to pressure India into rejoining the IPI negotiations. And there are indications that this tactic may be working. In March, a month after Mottaki’s statement about China, Iranian and Pakistani officials met in Turkey to sign an agreement on the pipeline, indicating their determination to move forward with the project with or without Indian participation. A couple of days later, New Delhi, which had withdrawn from the pipeline deal in September 2009, called on Tehran and Islamabad to meet in May for trilateral talks about the IPI. It is unclear whether India intends to rejoin the project in earnest, or would merely like to keep its options open. US pressure on New Delhi to abandon the project can be expected to grow should the May discussions make progress.

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