IP gas pipeline and the US

Pakistan must realize now that it should reform its foreign policy by showing less dependence on the West. There must be a shift in our foreign policy towards the eastern blocs, which are emerging as potential economic alliances. Pakistan has many options of alignment available to it and being a sovereign state, it has a fundamental right to serve its national interests than foreign pragmatisms. Therefore, no country has the right to interfere into Pakistan’s internal affairs that are in the interests of the country and could mitigate economic sufferings of its people.
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Despite US opposition, the 
$ 7.5 billion Iran-Pakistan gas pipeline or the Peace Pipeline is going ahead as planned. The Peace Pipeline initially had three players — Pakistan, Iran, and India — but the latter decided to part from the project in 2009 to avail the US nuclear deal. The Peace Pipeline will help Pakistan end its growing energy crisis that has put its economic wellbeing at stake. Pakistan’s economy is operating below par, which is affecting productivity, causing declining exports, and widening the balance of payments deficit. The Peace Pipeline is a major step forward for Pakistan at a time when its textile and fertiliser sector are showing a decline in output. With long and unexpected power outages, the industrial sector is in peril, which is why the business community has shown feelings of joy and relief over the project.

Iran will soon complete constructing its end of the pipeline; however, the construction of the 780 kilometre section of the pipeline on the Pakistani side will cost Islamabad nearly $ 1.5 billion. Washington never accepted the Peace Pipeline project and had its reservations over the initiative. Even though Pakistan will overcome its energy needs with Iran’s support, the latter’s nuclear ambition compelled the US to oppose the project.

Pakistan is eager to complete the pipeline in due time. However, the US doubts if Pakistan can finance the project. Moreover, analysts believe that the US will impose sanctions on Pakistan for defying Washington’s directives and siding with a country having a nuclear plan that worries the west. In addition, Pakistan might face US sanctions as mentioned in the 1996 Iran Sanctions Act, which allows the US government to ban imports from any non-American company that makes an investment of more than $ 20 million a year in the Iranian oil and natural gas sector.

Even though the Peace Pipeline is expected to provide benefits to Pakistan, it also has an underlining political motive. Analysts view that Pakistan’s ruling party will use the gas pipeline project to amass votes and create a positive public image in the upcoming elections. People are wondering why the government went ahead with the project with only a few days left remaining before the dissolution of the assemblies. Even with a political motive in place, the Peace Pipeline will benefit the state and the credit goes to the president and his team for sealing the deal. Construction on the $ 1.5 billion pipeline is scheduled to be completed by December 2014. If the project goes according to plan, Iran will supply 21.5 million cubic metres of gas per day from its gas field in South Pars to Nawabshah. This will solve Pakistan’s energy crisis and revive industry that fell prey to power outages.

The US not only opposed the project but also suggested Pakistan an alternative pipeline route from Turkmenistan to Afghanistan, Pakistan and to India. Iran andPakistan never accepted the replacement route. Furthermore, India’s presence in the project would have kept both Pakistan and India on the verge of a war-like situation, which would only destabilise the South Asian region. The Peace Pipeline will begin transporting gas to Pakistan from December 2014. However, with the project already marred with delays, the final deadline is yet to be decided.

Prior to the inauguration of the Peace Pipeline project, the US State Department spokesperson, Victoria Nuland said, “If this deal is finalised for a proposed Iran-Pakistan pipeline, it would raise serious concerns under our Iran Sanctions Act. We’ve made that absolutely clear to our Pakistani counterparts.”

The US may impose sanctions on Pakistan for engaging in business-related activities with Iran. According to the Congressional Research Report, Iran is prohibited from selling technology or equipment that aids its energy sector. In addition, Iran lacks the authorisation to conduct business dealings that involve gas or fuels of any type with any country.

Even with the US closely monitoring the proceedings of the Peace Pipeline, President Asif Ali Zardari is hopeful for the many advantages the gas pipeline will bring to Pakistan and views it as a win-win project for Iran and Pakistan. Addressing the gathering at the inauguration ceremony, the president said, “The completion of the pipeline is in the interest of peace, security, and progress of the two countries. It will consolidate the economic, political and security ties of the two nations.” Pakistan’s Foreign Office is repeatedly asserting that Pakistan will not face any opposition from the US and believes that the US will show more understanding on this issue. Only time will tell if Washington comprehends the causes that led Pakistan to go ahead with the Peace Pipeline.

Iranian President Mahmoud Ahmadinejad views the Peace Pipeline as a symbol of resistance against western domination. In the post-9/11 era, Pakistan became a major ally of the US in curbing extremism. However, the Peace Pipeline could put Pakistan in a heap of trouble. Pakistan cannot afford any aggressive diplomacy from the US at a time when foreign aid is crucial for its survival.
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By Muhammad Omar Iftikhar

The writer is a Karachi-based journalist who writes frequently on regional issues with focus on South Asia (Daily Times)

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The peace pipeline

While looking at the key trade and geo-political patterns in the world, it is imperative that the Pak-Iran gas pipeline is eminently sensible, should be completed and made operational at all costs. Thus, trade between Pakistan and Iran should not be a cynical exercise mired in political opportunism but should bring the two economies and people closer.
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On Monday March 11, 2013, the presidents of Pakistan and Iran Mr Asif Ali Zardari and Mr Mahmoud Ahmadinejad inaugurated the Iran-Pakistan gas pipeline. The pipeline is also, sometimes, referred to as the Peace Pipeline. The idea for such a supply channel was originally suggested by Malik Aftab Ahmed Khan in his article titled “Persian Pipeline”, which was published by the Military College of Engineering in the mid-1950s. It was conceptualised by Nobel Prize-winning Indian academic Rajendra K Pachauri and Iran’s former deputy foreign minister Ali Shams Ardekani.

In 1994, negotiations for ‘Peace Pipeline’ commenced between Iran and Pakistan. India joined the talks in 1999. Initially, the plan was dubbed as Iran-Pakistan-India gas pipeline, which was supposed to deliver Iranian gas to Pakistan and, onwards to India. However, India opted out of the project in 2009 citing dissatisfaction with the transit fee that Pakistan was demanding. There were also concerns about the security of the whole venture that traversed through hostile territory at several points. However, it is widely believed that India quit the project at the behest of the United States. Last year, a Chinese bank also abandoned the pipeline project out of fear that it might be subjected to international sanctions for dealing with Iran.

In late January, Iran and Pakistan jointly set up a company in order to build the Pakistani portion of the pipeline. Initially, the estimated time for completion of the Pakistani part was a little more than a year but according to recent Iranian media reports, it could take about two years.

The pipeline starts from Asalouyeh in Iran stretching 1,172 kilometres towards Pakistan. The 781 kms long pipeline on Pakistani side will travel through Balochistan where it will branch out towards Karachi. The main line will continue onward towards Multan and beyond. It will deliver 750 million cubic feet of gas on a daily basis. The cost of gas thus imported will be 14.53 dollars mmbtu. According to the terms of an agreement signed by Iran and Pakistan in 2010, if the latter fails to complete its side of the pipeline by 2014, it will be obligated to pay a daily penalty of a million dollars to Iran until the conduit is complete.

The Iranian side of the pipeline is almost complete. The Pakistani part of the project will cost around 1.5 billion dollars. Iran will loan one-third of this sum amounting to 500 million dollars out of which 250 million dollars will be paid directly to the construction firm responsible for laying 80 kms of pipeline inside Pakistan. The next tranche of 250 million dollars will help in laying the remaining 701 kms pipeline. This loan, alongwith a two percent interest plus LIBOR, will be repaid as a fraction of the price of gas. Pakistan will still need to raise sizeable funds in order to see the project through, a task that seems hurculean at the moment in the wake of considerably depleted foreign reserves and a hefty IMF repayment hovering over the head.

Pakistan is highly dependent on natural gas for domestic and commercial consumption as well as electricity generation. Moreover, natural gas also plays a very crucial role in transportation within the country. For years, Pakistan is desperately trying to cope with an acute energy shortage that has all but crippled the economy. Last month, the country suffered a nation-wide blackout that only served to further highlight its exponential energy woes.

The US is vehemently opposed to the project and assumes that the hasty progress of the Peace Pipeline is politically motivated since the energy issue, by all accounts, will play a pivotal role in this year’s general elections. The mandate of the present government will expire in a few days. The ruling party may be planning to use the Peace Pipeline as a gambit for securing votes since the public will perceive it as a practical step towards resolving the energy issue. Moreover, defying the US, or seeming to do so, is extremely popular in Pakistan whose overwhelming public opinion is anti-US despite being the recipient of enormous American aid.

The US has threatened Pakistan with sanctions if it builds the gas pipeline. However, it is more likely that sanctions will be imposed only after the actual delivery of gas starts. Pakistani companies buying gas from Iran may also face US restrictions. The State Department recently criticised Pakistan for wasting its limited resources on such projects. The US is concerned that the Peace Pipeline will enable Iran to evade international sanctions by selling a huge amount of its gas. This will, consequently, blunt US efforts to keep Iran under pressure over its nuclear activities.

In order to address Pakistan’s genuine energy concerns, the US has suggested the trans-Afghanistan pipeline for delivering gas from Turkmenistan to Pakistan through Afghanistan. The pipeline could be extended further to India. Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline, which will effectively bypass Iran, has been on the tables in Washington for several years but could not materialize despite Asian Development Bank’s backing due to the fragile security situation in Afghanistan. The TAPI proposal is, however, still alive and may transpire in the next five years.

Pakistan’s current annual oil import bill exceeds 12 billion dollars. The bulk of the imported furnace oil is used for generating electricity. Importing gas from Iran may prove helpful not only in managing the severe energy crisis but also reducing Pakistan’s import bills to a reasonable extent. However, it is also important to carefully examine the diplomatic costs of carrying on with a geo-politically significant project that is not favoured by the international community.
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By Atif Shamim Syed

The writer is an investment banker and a freelance columnist for various publications. He can be reached at syedatifshamim@hotmail.com

Daily Times

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US frustrated by Iran-Pakistan gas pipeline

Though Pakistan has been accounted a US ally in its war on terror, and has provided it ‘unstinted support’, it has its own compulsions which oblige it to ignore US objections. There has been the investment of time: it has been 19 years since the project was first broached, and 18 since the preliminary agreement between the two countries signed. In contrast, India was only included in the project in 2005, and promptly withdrew in 2009.
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The ‘peace pipeline’, so named to denote the benefits of the gas project for Iran, Pakistan and the region, has finally seen a beginning on the Pakistan side. This pipeline, as stated by President Asif Ali Zardari and his Iranian counterpart Mahmoud Ahmadinejad at the ground breaking ceremony at Gabd near the Iran-Pakistan border is indispensible to eradicate Pakistan’s energy deficit. Though India, by CouponDropDown”>one of the original three partners of the pipeline, has backed out of the project to gain other benefits from the US (the nuclear power cooperation agreement), the pipeline still holds promises benefits for the remaining two partners, Pakistan and Iran, with China a potential third in times to come. Pakistan has been in dire need of expanding its energy resources. The indigenous gas reservoirs have depleted over the years given our mismanagement and unplanned consumption without future considerations. The economy of the country is functioning below capacity. Industries are closing down because of insufficient and interrupted energy supply. The hardest hit sectors have been textiles and fertilizer. These sectors being the backbone of our economy, one could imagine the productive loss Pakistan had experienced because of the troubles of these industries. It is because of this that the business community has shown jubilation over the implementation of the project. They are eying a 50 percent increase in production once the gas is available to industry. For domestic cosumers too it would be a sigh of relief eventually, since the capacity of the gas received from Iran will produce 5,000 MW electricity, reducing the energy shortfall
tremendously, which has been a cause of incessant crises and disruption in daily life. The gas pipeline groundbreaking ceremony in short, has given Pakistan some reasons for optimism. 

The project however is still not devoid of uncertainties. The effort that has already taken 18 years to come this far still faces certain political and security issues which, if not handled with upfront urgency, could throw a spanner in the works. Two such security issues are the nationalist insurgency and the terrorist activities of groups like Lashkar-e-Jhangvi in Balochistan. The nationalists have expressed their reservations over the gas pipeline, terming it against the interests of the Baloch people. Lashkar-e-Jhangvi’s unconcealed hatred toward Shias could drive them to sabotage the pipeline that would pass through Balochistan along its route to Gwadar and on to Nawabshah in Sindh. As far as the nationalists are concerned, a political solution is the only way to address their feelings of alienation. The terrorists, unfortunately, require to be combated. The sooner the government corners them the better. There is also a serious need of overhauling the system for transmission losses, poor dues collection, leakages, pillage, and substitution of furnace oil for power generation. Finally, the ability, especially of the new government in power after the elections in May, to complete the project, in spite of opposition from the US, is critical for the success of the pipeline. Steadfastness is the key.

Just as Pakistan has followed its national interest in spite of growing US and UN sanction threats, it ability to see the pipeline project completed will depend largely on the same spirit. US proposals on energy projects to tide over Pakistan’s energy needs have been insufficient and lacked clarity in terms of tangible projects. Even otherwise, the energy requirement Pakistan faces is much greater and urgent. The US proposed projects so far extended fall short of both these requirements. However, there are many cases where sanctions have not been applied by the US that provide room for waiver Pakistan could get on transporting gas from Iran. 

The future of Pakistan largely depends on its ability to revitalize its economy. Dampened by innumerable burdens, the major being terrorism, the country could slide into irretrievable danger if the people of the country are not given the necessary means to live a decent life. Since 1994, the project has suffered innumerable delays on a number of occasions. Finance proved difficult to raise. Now that Iran and Pakistan along with China have agreed to push the project ahead, it should not become a victim of the controversy over Iran’s nuclear programme, particularly, as is hoped, that problem can yield a solution through international diplomacy. 
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