Report My Signal- Professional Matters

IRAN-PAKISTAN GAS PIPELINE: IMPLICATIONS FOR INDIA

 

The Pakistani President and his Iranian counterpart Dr Ahmadinejad on 11 March performed the groundbreaking of the long-awaited $7.5 billion Iran-Pakistan (IP) gas pipeline project at Gabd on the Pakistan-Iran border and in the process laid the foundation of bilateral energy cooperation opposed by the US. They also unveiled a plaque of the project and saw welding together of two pieces of pipeline painted with flags of the two countries. Earlier the Pakistani delegation had flown in three planes to Chabahar about 200km from Gabd. “The Iran-Pakistan ‘gaslifeline’ will help eradicate terrorism, bring prosperity to the region and overcome poverty,” President Zardari said after the ceremony.

 

The IP pipeline will deliver 750 million cubic feet of gas per day (mmcfd) to Pakistan by January 2015. Agreements for opening two more border crossings (Gabd and Pasni) and setting up a $4 billion oil refinery with a capacity of 400,000 barrels per day (bpd) at Gwadar were also said to be signed after the ceremony. It is estimated that the pipeline project on completion will contribute about five per cent to Pakistan’s GDP and create 10,000 jobs during construction and about 3,000 after completion.

 

Pakistan currently has an electricity shortfall of approximately 5,000 megawatts (MW) per day despite the fact that nearly a third of the population does not have access to grid electricity. At present almost 48 percent of the country’s energy needs are met from indigenous natural gas resources. Pakistan’s current natural gas demand is about 7.27 bcfd, while the supply is only 4.45 bcfd, thus leaving a huge gap of around 2.8 bcfd. This demand and supply gap is expected to further increase to around 8 bcfd by 2022. Pakistan has an acute need for energy and plans to produce 20 percent of its electricity (4000MW) from Iranian gas.

 

The IP pipeline project, conceived in the early 1990s, envisages delivery of gas from Iran’s South Pars field through an 1150-km pipeline. A 900-km pipeline from South Pars to Sheher in Iran has already been laid while the construction of a 200-km pipeline up to Gabd is in the final stages of design. The 781-km Pakistani section of the pipeline is to be laid close to Makran coastal highway from Gabd to Nawabshah, in Sindh.

 

Construction work of the Pakistani section will be undertaken by Tadbir Energy of Iran at an estimated cost of $1.5 billion. Iran will provide $500 million — half through a government loan and half through an Iranian bank. The remaining $1 billion will be provided by Pakistan including through the Gas Infrastructure Development Cess (GIDC). Tadbir Energy has also agreed to provide and assist in arranging $250 million as supplier credit and any additional financing for the second phase. The firm will act as the lead contractor along with the nominated local subcontractor(s). Under an accord signed in June 2010, Iran will provide about 21.5 mmcmd to Pakistan for 25 years. The deal can be extended by five years and volumes may rise to 30 mmcmd. mmcmd Million Metric Cubic Meter Per Day

 

US has opposed the project, instead proposing and promoting the alternate pipeline, TAPI (Turkmenistan to Afghanistan, Pakistan, and then to India). The US has also promoted several electricity-generation projects inside Pakistan including assisting in renovating hydropower dams. US Secretary of State Hillary Clinton told Congress in February of 2012 that "We believe that actually beginning the construction of such a pipeline, either as an Iranian project or as a joint project, would violate our Iran sanctions law.” Pakistan’s benchmark KSE 100 share index plunged 2.5 percent in Karachi, the biggest drop in almost two months amid fears of US sanctions. As the US reaction was slow in coming the index recovered the next day.

 

It is the timing of the Pakistani move to reach out to Iran that has that has befuddled most analysts. The political spin is that with elections round the corner Zardari government wants to take the credit of standing up to the US-Saudi pressure and counter its image of toeing the US agenda. Critics also feel Zardari is leaving a hot potato for his successor if the PPP loses the election or even worse go slow on the project once elected. Zardari government hopes the IP project will do for its fortunes what the US civil nuclear deal did for Manmohan Singh government in India.

 

Pakistan has also managed to get a better deal from Iran because of the US sanctions and fall in Iranian oil exports. The Iranian price of gas is currently estimated at 78 per cent of the international oil price, but subject to revision a year before first flows.

 

Pakistan’s agreement with Iran is to lay down the gas pipeline within 15 months, which incidentally also coincides with the timeframe of US forces’ withdrawal from Afghanistan. More recent reports from Iran’s state media have said it may take up to 22 months. Therefore before the gas actually begins to flow into Pakistan, there exists this Afghan leverage with Pakistan and the hope that the Iran crisis blows over. The Baluch security situation is a clear and present threat. The presence of Chinese at Gwadar may not change the situation.

 

The IP pipeline project has strategic and energy security implications for India. First, the pipeline removes all incentives from the TAPI. Pakistan gets its gas from Iran so could Afghanistan alongwith the oil it imports from Iran. In any case, if the security situation permits, it would make more sense for Afghanistan to get Turkmen gas from the proposed Chinese pipeline than TAPI. The Turkmen decision to opt for TAPI is politically motivated and US driven; it has enough buyers for its gas. Second is the China factor. The entire scenario would change dramatically if China shows interest in the IP pipeline and the proposed Iran sponsored refinery at Gwadar. It has been reported that China is backing the project with a $500 million loan to Pakistan. Chinese presence would ease many financial, technical, security and geostrategic concerns for Pakistan and Iran. Such a scenario would also virtually kill any chances of India opting for the IP pipeline if the US/UN sanctions on Iran are removed. Third, involvement of Pakistan and US retaliatory action against the IP pipeline will adversely impact India-Iran relations and India’s access to Chabahar port, Afghanistan and the Central Asian Republics.