IranPakistan Peace Pipeline 1 Iran-Pakistan Peace Pipeline Editor Dr Noor ul Haq Assistant Editor Muhammad Nawaz Khan

2 IPRI Factfile C ONTENTS Preface 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 2 1. 22. 23. 24. 25. 26. 27. 28. 29. 30. Pakistan-Iran Gas Pipeline: History and P erspectives Pakistan, Iran Finally Sign Gas Pipeline Accord Trade and Transit of Goods Get Special Attention: Pakistan, Iran Sign Peace Pipeline Declaration Peace Pipeline at Last India has No Plan to Shelve IPI Gas Pipeline IPI Becomes Peace Pipeline Pipeline or Pipe Dream? Gazprom and IPI Feasibility of Iran-Pakistan Gas Pipeline Project: Contract Awarded to German Firm Will China Join the Iran-Paki stan-India Pipeline? Iran-Pakistan Pipeline Project to Cost $3-4 Bn Iran and Pak istan Sign Historic Pipeline Deal Pipeline Agreement Iran-Pakistan Gas Pipeline IPI: The Baloch Perspective Pipeline Politics Unrealistic Advice U.S. Objection to Pak-Iran Gas Pipeline Frivolous U.S. Objection to Gas Deal with Iran Pipeline Politics U.S. Diktat on Iran Pipeline Not to be Entertained Iran to Complete Pe ace Pipeline Pakistan, Iran Sign Major Gas Pipeline Pact Pak-Iran Gas Pipeline I ran to Approve Pakistan Gas Pipeline Deal this Week Iran-Pakistan Gas Pipeline P roject Inked Iran Begins Work on Gas Pipeline Today Pakistan Seals Pipeline Deal with Iran v 1 5 6 8 9 10 12 15 16 18 22 23 24 25 27 28 29 30 31 32 35 36 37 38 40 41 42 44 Iran-Pakistan Gas Deal Boosts Iran U.S. Says New Sanctions on Iran could Impact Pakistan 46 48

IranPakistan Peace Pipeline 3 31. 32. 33. 34. 35. 36. 37. Pakistan Foreign Minister Vows to Implement Iran Gas Pipeline Project Confusion Reigns over U.S. Stance on Gas Pipeline U.S. Blows Hot, Blows Cold over Pak-Iran Gas Pipeline Pakistan Not Bound by U.S. Sanctions Against Iran: Gilani Iran-Pak istan Pipeline Yielding to Pressure Pakistan and Iran Reiterate Commitment to Ex ecute Iran-Pakistan Power Projects UK Says Iran Gas Pipeline Pakistans Internal M atter Iran-Pakistan Gas Pipeline to Strengthen Relations Pipeline to Transform P akistan into Asian Tiger Pakistan-Iran Pipeline Pakistan Portion of Iran Gas Pip eline to Cost $1.2 Bn Pak-Iran Pipeline: Pakistan to Construct 780-km Pipeline P akistan Plans to Mobilise Domestic Funding Tehran Pressing India on Land Gas Pip eline Pakistan Going Ahead with Iran Gas Line India, Iran to Hold Gas Pipeline T alks The Iran-Pakistan Gas Pipeline Iran-Pakistan Pipeline: One-Third Completed Pak-Iran Gas Pipeline Agreement Gas Pipeline Project: To Do or Not To Do Iran-Paki stan Gas Line: Pakistan May Raise $ 1.6 Bn Itself 49 50 52 53 54 56 57 58 59 60 61 62 64 65 66 67 68 70 72 73 73 77 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. IPRI Publications 78

4 IPRI Factfile P REFACE Iran-Pakistan Gas Pipeline between energy deficient Pakistan and energy rich Ira n is a feasible and doable project, but it has been lingering since 1995 when an MOU was signed to construct the pipeline between Pakistan and Iran. The project was designed to deliver natural gas from Iran to Pakistan and India. The 2775 k m (approximately 1100 km in Iran, 1000 km in Pakistan and 600 km in India) long pipeline was proposed to emanate from South Pars gas field and pass through Band ar-Abbas, Khuzdar, Sui to Multan and then to Delhi, at an estimated cost of US $ 7.5 billion. India had proposed an alternative route along the coast. The proje ct was termed as the peace pipeline as it was hoped that it would help in oblitera ting old rivalries and pipeline diplomacy would bring peace to the region1. The Ir an-Pakistan Working Group was formed in 2003 to move the project forward. Islama bad had told Tehran that, in case India was not willing to join, Iran-Pakistan g as pipeline should be pursued as an independent project; but, in 2005, an MOU wa s signed to include India in the project. In 2007, India and Pakistan provisiona lly agreed to pay Iran US $ 4.93 per million British thermal units, but India su bsequently withdrew from the deal ostensibly over concerns about the price and s ecurity. Pakistan is believed to have informed the U.S. that it was not possible for it to abandon the project because of its pressing energy needs. In spite of U.S. opposition, Pakistan and Iran signed an agreement for the pipeline on Marc h 16, 2010 at Ankara; and in Tehran, the Iranian President Mahmoud Ahmadinejad a nd Pakistani President Asif Ali Zardari signed the Inter Governmental Framework Declaration on May 24, 2009. After the signing ceremony of the sovereign guarant ee agreement, Pakistans Minister for Petroleum and Natural Resources said that th e Gas Sale and Purchase Agreement between Pakistan and Iran was for the import o f 750 million cubic feet daily of natural gas with a provision to increase it to one billion cubic feet per day. Hopefully, the gas will be available to Pakista n by 2014. 1 Prime Minister of Pakistan, Dawn (Karachi), February 23, 2005.

IranPakistan Peace Pipeline 5 Though India has lately shown interest in the pipeline again, the real reason wh y it backed out of the three-nation deal was its nuclear deal with the U.S. sign ed in 2008. It is also alleged that there were deliberate attempts by India to sa botage this vital venture, as New Delhi used it as a bargaining chip with the Un ited States during discussions on nuclear accord to gain more concessions.2 Earli er, in 2008, Iran had also expressed its interest to provide gas to China, whose response is yet to be ascertained. This issue of the IPRI Factfile provides a f ew articles and comments appearing in the media from May 24, 2009 till July 27, 2010. July 31, 2010 Dr Noor ul Haq 2 Editorial, Pakistan Observer (Islamabad), July 18, 2010.

IranPakistan Peace Pipeline 1 P AKISTAN -I RAN G AS P IPELINE The IranPakistanIndia gas pipeline, also known as the IPI pipeline or the Peace pi peline, is a proposed pipeline to deliver natural gas from Iran to Pakistan and India. Country: Iran, Pakistan, India From: Asalouyeh (South Pars gas field) Pas ses through: Bandar-Abbas, Iranshahr, Khuzdar, Sui, Multan Type: Natural gas Par tners: National Iranian Oil Company, Sui Northern Gas Pipeline Limited, Sui Sout hern Gas Company Limited Expected: Mid 2015 Length: 2,775 kilometers (1,724 mi), From Iran side 1100 Km (730 iles), Pakistan 1000 Km and India 600 Km Discharge: Initially 22 billion cubic meter per year (21.5 million cubic meters per day) ( 750 million cubic ft), Will be raised upto 55 billion cubic meter per year Diame ter: 48 inches (1,219 mm) Estimated Cost: US $ 7.5 billion In Khuzdar a branch w ould spur off to Karachi. From Multan the pipeline may be expanded to Delhi Alte rnative Rout proposed by India: Iran to the maritime boundary between India and Pakistan off Kutch. From there one branch to run to Pakistan while other branch to run to Kutch. History The idea was conceived by a young civil engineer in mid 1950s, when an article o f his was published by the Military College of Engineering, Risalpur. His name w as Malik Aftab Ahmed Khan. He retired from the Pakistan Army as a Lt. Col. in 19 76 and died in 1999, at the age of 70 years. The article "Persian Pipeline" also mentioned the method for its protection along the hostile territory by establis hing mini battalion-size cantonments along its proposed route through Baluchista n/Sind. Serving multiple functions, to control dacoits and terrorists etc and to provide protection to the pipeline. The project was conceptualized in 1989 by R ajendra K. Pachauri in partnership with Ali Shams Ardekani, former Deputy Foreig n Minister of Iran. Dr Pachauri proposed the plan to both Iranian and Indian gov ernments in 1990. The government of Iran

2 IPRI Factfile responded positively to the proposal. At the annual conference of the Internatio nal Association of Energy Economics, 1990, Dr Ardekani backed Dr Pachauris prop osal. Agreements/MOUs 1. Discussions between the governments of Iran and Pakistan started in 1994. A p reliminary agreement was signed in 1995 between Pakistan and Iran. This agreemen t foresaw construction of a pipeline from South Pars gas field to Karachi in Pak istan. (The South Pars/North Dome field is a natural gas condensate field locate d in the Persian Gulf. It is the worlds largest gas field, shared between Iran and Qatar. According to the International Energy Agency, the field holds an esti mated 50.97 trillion cubic meters (1800 trillion cubic feet) of in-situ gas and some 50 billion barrels of condensates. This gas field covers an area of 9700 sq uare kilometers, of which 3700 square kilometers (South Pars) is in Iranian terr itorial waters and 6000 square kilometers (North Dome) is in Qatari territorial waters) 2. In February 1999, a preliminary agreement between Iran and India was signed to extend the pipeline from Pakistan into India. 3. The project was reviv ed and bilateral Iran-Pakistan Joint Working Group (JWG) was constituted and the first meeting was held on December 29-30, 2003 in Islamabad. An MOU was signed on July 7, 2005 to include India in the Project. 4. A Term Sheet was signed betw een Iran and Pakistan on November 16, 2005. The Term Sheet provided for gas supp ly of 2.1 billion cubic feet per day (Bcfd) for a period of 30 years. 5. In Febr uary 2007, India and Pakistan agreed to pay Iran US$4.93 per million British the rmal units (US$4.67/GJ) but some details relating to price adjustment remained o pen to further negotiation. 6. Initial gas price formula agreed in January 2007. The Economic Coordination Committee of the Cabinet (ECC) in April 2007 approved gas price formula subject to the condition that in case Iran offers a better pr ice to India, the same would be applicable to Pakistan. 7. Pakistan held a numbe r of separate bilateral meetings with Iran as well as with India and project iss ues like gas volumes, project structure, governing laws, pipeline route, princip les of transport tariff and transit fee were deliberated upon in detail.

IranPakistan Peace Pipeline 3 8. In April 2008 Iran expressed interest in the Peoples Republic of Chinas par ticipation in the project. 9. The Federal Cabinet in its meeting dated 8th April 2009 cleared the project to enter into GSPA with Iran. Consequently, Presidents of both the countries signed the Inter Governmental Framework Declaration on 24 th May 2009. On the occasion, ISGS from Pakistan and NIOC from Iran, initialed t he Gas Sales Purchase Agreement (GSPA). 10. In 2009, India withdrew from the pro ject over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008. However, in March 2010 India called on Pakistan and Iran for trilateral talks to hold in May 2010 in Tehran. 11. In January 201 0, the United States asked Pakistan to abandon the pipeline project. If cancelin g the project, Pakistan would receive assistance from the United States for cons truction of a liquefied natural gas terminal and importing electricity from Taji kistan through Afghanistans Wakhan Corridor. 12. However, on 16 March 2010 in A nkara, Iran and Pakistan signed an agreement on the pipeline. Perspectives 1. The Project is planned to be financed on Public Private Partnership basis. 2. However, in view of the strategic nature of the project the Govt of Pakistan (G OP) will hold controlling share in the pipeline company through investment by Pu blic Sector Entities (PSEs). 3. The project will support around 4,000 MW power g eneration capacity, which will help in overcoming the power shortage crisis. 4. The construction of pipeline will also create job opportunities in backward area s of Balochistan and Sindh. 5. Iran clearly connects the main perspectives with further building of the pipeline into other countries; Pakistan as well interest ed in additional income due to gas transit. India left the negotiations in 2008 but its economy grows rapidly, and energy consumption and deficit are growing as well. It is quite probable that one more branch of the pipeline will go to Indi a. 6. Another frequently discussed possible variant is continuing the pipeline t o China.

4 IPRI Factfile 7. Teheran invited Russian gas monopolist Gazprom to build a pipeline into Pakista n and Gazprom claimed its readiness to join the project and function as operator o f the pipeline and contractor of the building. 8. Iran has also proposed that an electricity transmission network be built next to the pipeline, connecting elec tricity grid of Iran with that of Pakistan, India and China. Iran has offered to sell electricity to Pakistan, India and China at a subsidized rate. Iran Gas Reserves 1. Iran has an estimated 982 trillion cubic feet (TCF) or 27.8 trillion cubic me ters (TCM) of proven natural gas reserves which are the worlds second largest a fter Russia. Around 62 % of Iranian natural gas reserves are located in non-asso ciated fields, and have not been fully developed. Major natural gas fields inclu de: South and North Pars, Tabnak, and Kangan. 2. The most significant gas field in Iran is the offshore South Pars field, which is estimated to have 450 TCF or 14 TCM proven natural gas reserves, around 40 % of Irans total proven natural gas reserves and 8% of the worlds reserves. South Pars is nominated gas supply sourc e for the IPI Project. 3. According to recent studies Iranian gas production sho uld reach 280bcm by 2018, up from 112bcm in 2007, while consumption is expected to rise from 119bcm to 208bcm by the end of the forecast period, providing expor ts potential of 72bcm. Iran Gas Exports 1. Iran exports about 6-9 BCMA to Turkey via a 2,500 KM pipeline connecting the two countries. The agreement was signed in 1996 2. Iran also exports 1 BCMA gas to Armenia, and under the arrangement imports electricity. Iran and Armenia are in negotiations to gradually increase the volume to 2.3 BCMA. Falaksher, http://studentsfuture-sher.blogspot.com/2010/07/pakistan-iran-gaspipe line.html (accessed May 24, 2010).

IranPakistan Peace Pipeline 5 P AKISTAN , I RAN F INALLY S IGN G AS P IPELINE A CCORD After fourteen years of delayed negotiations over the IranPakistanIndia (IPI) gas pipeline project, Pakistan and Iran have finally signed the initial agreement in Tehran on Sunday [May 24, 2009]. The project, termed as the peace pipeline by o fficials from both countries, has been signed by President Zardari and President Mahmoud Ahmadinejad of Iran on the sidelines of the tripartite summit on Afghan istan security in Tehran. However, talking to the Iranian official news agency I RNA the Irans Oil Ministry had said that negotiations on the Peace Pipeline project were still underway between Iranian and the Pakistani delegations, which would allow Irans gas to be exported to Pakistan. The Pakistani delegation negotiating the project was led by the advisor to the prime Minister on Petroleum Dr Asim Hu ssain, who is accompanied by petroleum ministry officials and a technical team h eaded the managing director Inter State gas Systems (ISGC), Syed Hasan Nawab. Th e ISGS is a semi-autonomous body looking after Pakistani interests in the intern ational gas pipeline projects to import gas from Iran and Turkmenistan. The fede ral cabinet had earlier agreed to allow the import of one billion cubic feet of gas at the rate of 80 per cent of the price of crude oil. The next phase was to s ign the gas sales purchase agreement with Iran, member of the delegation told Daw n. Official sources said that soon after signing of the gas sales purchase agree ment work would start at the designing of the project. Pakistan has already appoi nted a German designer is ILF for the pipeline, petroleum ministry sources said, ad ding that the pipeline would enter Pakistan from its border near Gwader area to Nawabshah, which is the hub of gas pipelines in the country. The IPI project was conceived in 1995 and after almost 13 years India finally decided to quit the p roject in 2008 despite a severe energy crises in that country. Pakistan is also facing severe criticism from the US over any kind of economic deal with Iran. Of ficial sources say that the sudden change of stance from the Pakistani governmen t and the pace of developments at the project suggest that the strong US opposit ion has softened.

6 IPRI Factfile According to the initial design of the project, the 2,700 kilometrelong pipeline would cover around 1,100 kilometres in Iran, 1000 kilometres in Pakistan and ar ound 600 kilometres in India, and the size of the pipeline was estimated to be 5 6 inches in diameter. We are still hoping that India would join the project but i n other case the size of the pipeline would be reduced to 42 inches as initially estimated, an official of ISGS said. However sources in the ISGS said designing and finalising the reports of financial consultants would take up to one year an d the work over the project can be started by mid of 2010. The estimated project completion time is between five years. Sources in the petroleum ministry said t hat despite cabinet approval Pakistan would negotiate to get the gas prices lowe red. The official report prepared by the petroleum ministry and the ISGS said th at the gas would be purchased for power generation and it would enable Pakistan to generate 5,000 megawatts (MW) power. The petroleum ministry also said that po wer generation and usage of imported Iranian gas by heavy industries would resul t in annual saving of up to $1 billion in furnace oil imports, if the crude oil prices are at $50 per barrel. The reports and calculations forwarded by the ISGS further said that there would be an annual saving of $735 million, compared to if the equivalent quantity of LNG was imported for power generation, and the sav ing will increase in line with the hike in global crude oil price. Dawn (Islamabad), May 24, 2009, http://www.dawn.com/wps/wcm/connect/dawn-contentlibrary/dawn/news/business/09-ir an-pakistan-sign-gas-pipeline-deal-media-szh--07 T RADE AND T RANSIT OF G OODS G ET S PECIAL A TTENTION : P AKISTAN , I RAN S IGN P EACE P IPELINE D ECLARATION President Asif Ali Zardari and his Iranian counterpart Mahmoud Ahmadinejad on Su nday signed an inter-governmental framework declaration to support within the fr amework of their respective laws and regulations, the gas deal signed by the oil ministries of the respective countries. Earlier, the Gas Sale Purchase Agreemen t was signed by the managing directors of the National Iranian Oil Company and P akistans

IranPakistan Peace Pipeline 7 Inter-state Gas System for the export of Iranian natural gas to Pakistan at the border of Iran-Pakistan for domestic consumption in Pakistan. The deal known as a peace pipeline was signed on the sidelines of the current tripartite summit of P akistan, Afghanistan and Iran on elimination of terrorism, drugs and human traff icking also on Sunday. Some 1,100 of the 2,100 kilometre pipeline would be laid in Irans territory and 1,000 kilometres in Pakistan. Foreign Office Spokesman Abd ul Basit said Iran would supply 23 million cubic metre gas per day for 25 years under the agreement, adding the agreement could be extended for an additional fi ve years. He said it was agreement between Pakistan and Iran, however, the agree ment had provisions to include India if it wanted to join the project. Adviser t o the Prime Minister on Petroleum Asim Hussain told APP that Pakistan and Iran w ould sign the formal agreement for the multi-billion dollar project in a third c ountry within the next 15 days. Special issues: The three countries agreed to es tablish a mechanism for holding regular and periodical trilateral consultations on special issues, according to a joint communiqu released at the conclusion of t he oneday trilateral summit. The three countries reaffirmed their deep commitmen t to make every effort to eliminate extremism, militancy and terrorism from the region. The three countries will also collaborate closely in establishing and de veloping energy corridors in the region, including oil and gas pipelines and ele ctricity networks. Trilateral economic, industrial, planning commission and cham bers of commerce will also be established. Trade: The three sides emphasised fur ther effective measures for implementation of bilateral, trilateral and multilat eral agreements on trade and transit of goods between and through their countrie s. Zardari: President Asif Ali Zardari on Sunday stressed for joint efforts and increased cooperation among Pakistan, Afghanistan and Iran for combating the cha llenges of terrorism and militancy, which were badly hurting peace, security and development in the region. We have to get together to tackle these challenges. I t is not just the matter of our survival, but for the betterment and safety of o ur future generations, Zardari said. Daily Times (Lahore), May 25, 2009, http://www.dailytimes.com.pk/default.asp?pag e=2009\05\25\story_25-52009_pg1_1

8 IPRI Factfile P EACE P IPELINE AT L AST There is little good news these days, but perhaps we should not despair. Iran an d Pakistan have signed a deal to construct a gas pipeline that had been on the c ards since 1995, notwithstanding the numerous turns and twists in negotiations. The gas sales agreement should also be signed shortly. We can then hope for work on the project to begin. This is a major breakthrough for Pakistan which will g ain tremendously in the energy sector. When completed the 2100-kilometre pipelin e will carry 750 million cubic feet of gas per day from Irans South Pars fields t o Nawabshah in Sindh. This gas will be used only for energy generation and help produce 5000MW of electricity for this power-starved country. The price agreed u pon for the moment i.e. 80 percent of the oil price, may not be as low as initia lly bargained for. But in the absence of alternatives this appears to be the mos t feasible offer. With oil prices falling as they are these days, Pakistan shoul d benefit. There are, however, two aspects of this project that must be kept in mind. One is directly linked to Pakistans security concerns in Balochistan. Fears have been expressed that the turmoil in Balochistan will threaten the security of the pipeline since a great length of the 1,000 kilometres inside Pakistan pas ses through that province which borders Iran. Islamabad could convert this facto r to its advantage if it can ensure that in the construction of the pipeline ind igenous labour is hired and the gains of the economic activity inevitably genera ted by projects of such magnitude are focused on Balochistan for the benefit of its povertystricken people. The peace pipeline will begin functioning in another five years. This period should be used by Islamabad to address the Balochistan problem in earnest to find a just solution that redresses the grievances of the provinces citizens. The international implications of the Iran-Pakistan pipeline accord also have great significance. At one stage India had expressed serious in terest in the project as it also stood to benefit from it. Had India not dropped out as it did last year the pipeline would have emerged as a powerful focal poi nt in a region that is emerging as an important site on the world energy map. Th e two signatories have kept the door open for New Delhi that can still join the arrangement at some point. Plans to reduce the circumference of the pipeline sho uld keep the prospects of Indias entry in view. Very importantly, Pakistan has di splayed a measure of independence vis--vis Washington which has been a persistent

IranPakistan Peace Pipeline 9 opponent of the pipeline deal. With changes in the global equations in the offin g and there being a possibility of a US-Iran dialogue, one can only say that Pak istan stands vindicated. Editorial, Dawn (Islamabad), May 26, 2009, http://www.dawn.com/wps/wcm/connect/d awn-content-library/dawn/thenewspaper/editorial/peace-pipeline-at-last-659 I NDIA H AS NO P LAN TO S HELVE IPI G AS P IPELINE In discussions with Iran, Pakistan The Indian government, said a senior official , wishes to take talks forward on the $7 billion Iran-Pakistan-India gas pipelin e project. This was a day after Iran and Pakistan were reported to have signed o n the pipeline agreement. India is in discussion with Iran (on the gas price rev ision clause) and with Pakistan (on transport cost issues) to resolve the issues impeding a deal. We are very much interested in the pipeline, said a senior offic ial from the ministry of petroleum and natural gas. India has been part of the 2 ,775-km pipeline project for over a decade, but did not participate in a critica l meeting held on the issue in October last year, where officials from Iran and Pakistan discussed the project cost and new gas pricing formulae. We are always l ooking for sources of gas to ensure energy security. However, while we would wan t gas security, we do want it at a reasonable pricing, the official added. India needs to resolve its issues with Pakistan including security of the pipeline bef ore moving on to the issues with Iran. Before discussing other issues, resolving the issue of transit fee and transportation cost is important, an official said. Iran, Pakistan and India had earlier mutually agreed to a price of $4.93 per mil lion British thermal unit (mBtu) for the gas from the South Pars field in Iran. Analysts say with India having to pay a transportation charge to Pakistan, the p rice could go up to a high of $8-10 per mBtu. In the past, there have been repor ts that India could opt out of the project, with Iran and Pakistan bringing in C hina as a possible third partner. However, the ministry official denied any such proposal.

10 IPRI Factfile Considering the route, it is impossible that China could be a part of this projec t, the official added. India is likely to receive an estimated 30 million cubic m etres of natural gas per day (mcmd) from Iran, if the agreement comes through. R euters reported last week that officials from Teheran and Islamabad had signed a n agreement on exports of Iranian natural gas. Iran would deliver an annual 8 bi llion cubic meters of gas to Pakistan under the agreement. Iran has the worlds se cond-largest gas reserves after Russia. But sanctions, politics and construction delays have slowed its development, and analysts say Iran is unlikely to become a major exporter for a decade. The construction of the Pakistani part of the pi peline would take three to four years. Under the original plans, the pipeline wo uld initially carry 60 million cubic metres of gas daily to Pakistan and India, half for each country. The pipelines capacity would later rise to 150 million cu metres. Business Standard (India), May 26, 2009, http://www.business-standard.com/india/ news/india-has-no-plan-to-shelve-ipigas-pipeline/359217/ IPI B ECOMES P EACE P IPELINE The big dividend from the tripartite Iran-Afghanistan-Pakistan meeting is the Ir an-Pakistan gas pipeline deal announced on Sunday. President Asif Ali Zardari an d President Mahmoud Ahmadinejad signed a framework agreement in Tehran which will lead to a formal agreement on the building of a pipeline in a fortnight. The pip eline project has taken 14 years to materialise because of the political vicissi tudes of the region and, one has to admit, inexperience on the part of the parti es concerned of the culture of pipelines. The project, earlier dubbed Iran-Pakis tan-India pipeline, was conceived in 1995. Last year, as a result of India signi ng the US-India nuclear treaty, based on a US Congress law which suggests that I ndia follow the American line on Iran, India quit the pipeline deal. Irans own re lations with India went through some ups and downs because of the formers frequen t change of mind on done deals. Pakistan also faltered on oil-pegged price-setting with Iran in a sellers market when oil was selling at nearly $150 per barrel. Th ankfully, all that now seems to have been sorted out.

IranPakistan Peace Pipeline 11 India is out for the time being. But Prime Minister Manmohan Singh, the economis t, might realise in his new tenure that nuclear technology has been trumped by I ndias colossal demand for energy. Today, when the price of oil is $60 a barrel, t he deal Pakistan has clinched looks greatly attractive. Pegged to 80 percent of the price of oil, the gas Pakistan will get will save it a billion dollars a yea r. But since these savings will be in the sector of oil and furnace oil imports the advantage will be durable. Also, the 2,000 km pipeline, shared half and half by the two countries, will not go through the troubled area of Khuzdar in Baloc histan but will enter Pakistan from its border near Gwadar and go to Nawabshah i n Sindh, which is the hub of gas pipelines in Pakistan. Pakistan will receive on e billion cubic feet of gas from this pipeline but will expect India to rejoin t he project. But India will have to decide pretty soon what it wants as the proje ct will start on the ground in 2010. If India doesnt, then the pipeline will beco me forever a two-state pipeline because of its diametrical size. Pakistan will u se this gas for industrial and power generation (5,000MW) purposes. It seems tha t the dream of Pakistan becoming a transit country for gas supply to India and C hina is on hold for some time. But the destiny of Pakistan as a transit hub will not be negated by war forever. The changing of the name of the pipeline to peace pipeline is not without significance. The signatories, Iran and Pakistan, cannot avoid the innuendo that peace has prevailed after a period of non-peace between the two. And the big development since the beginning of 2009, when the project was stalled because of pricing difficulties, has been Pakistans final decision to tak e on the Taliban inside Pakistan. Only a few months ago, hostile commentators in Pakistan were noting the presence of Irans foreign minister in Mazar-e-Sharif as a plot against Pakistan, but the truth is that Iran was greatly threatened by the possibility of the return of the Taliban to power in Afghanistan and said so wh en its officials recommended that Pakistan stop the Taliban onslaught in Pakista n. From the low point when Iranian diplomats were killed in Mazar-eSharif in 199 8, Iran-Pakistan relations have come out of their dark patch this year. The trans it route war which began with India helping Iran build the Chabahar port right ne xt to Gwadar is hopefully at an end; and after Pakistans opting for its true role in South Asia, the gas pipeline will serve to integrate the regional economies. Pakistans geopolitical, significance will be demonstrated to the world after the pipeline is

12 IPRI Factfile completed and Iranian gas from gas fields near the Gulf is used by industries ri ght next to the Indian border. After that, Pakistan will not be able to avoid pr osperity, which is the birthright of the people of Pakistan, by choosing conflic t instead of cooperation. Editorial, Daily Times (Lahore), May 26, 2009, http://www.dailytimes.com.pk/defa ult.asp?page=2009\05\26\story_26-52009_pg3_1 P IPELINE OR P IPE D REAM ? If all or most of the Iranian gas is used for the power sector, as stated by the government, then our energy mix will remain lopsidedly dependent on imported fu el. After more than a decade of negotiations and many ups and downs, Iran and Pa kistan signed the framework on the Iran-Pakistan peace pipeline during President A sif Ali Zardaris visit to Tehran, pushing the much-delayed project a notch forwar d. The gas pipeline project makes economic sense: Iran has surplus gas to sell a nd Pakistan needs gas. But situations, particularly in the extended Southwest As ian region, dont always follow economic logic; instead, they are determined by po litics, strategic interests, rivalries and conflicting views, particularly about Afghanistan. Since the pipeline project presently concerns Iran and Pakistan, i t would be better to comment on the nature of Pak-Iran ties and whether or not m oving forward with pipeline will also move forward the somewhat troubled relatio nship between the two states. The answer lies in how we read the nature of this relationship and how it is likely to develop in the context of the larger contex t of power between a variety of players Iran, Afghanistan, Pakistan, India and t he United States. The smiles and tight embraces of diplomats and political leade rs of Iran and Pakistan dont tell much about the hidden tensions, mistrust and cl oak-and-dagger behaviour between the two countries. All the talk about common cu ltural and civilisational roots doesnt carry much weight for territorialised nati on states, which have their own interests. It is the conflict or congruence of t hese interests that can either cause rifts between states or bring them closer t ogether. And in todays world, specific issues drive relations between states like Iran and Pakistan, and within the context of the larger strategic vision of eac h country.

IranPakistan Peace Pipeline 13 We are not sure if the strategic visions or regional and outside powers and the games they play create any groundswell for comprehensive partnerships beyond cer tain specific issues. The strategic partnership between Iran and Pakistan was sh aped by the dynamics of the Cold War, and American dominance in Iran ended three decades ago with the Iranian clergys capture of the state. The Iranian clergymen , like their counterparts in Pakistan, have a worldview, a strategic map and a p olicy framework to order Irans regional and global relationships. In their bipola r view of the East (Muslim countries) and the West, Pakistan has been on the oth er side of their policy and ideological fence. It has not been easy for Pakistan to win real friendship of the post-Shah Iranian leadership. We dont think Pakist ans pragmatic tilt toward the West, more specifically the United States, was or c ould be a major roadblock in the way of closer relations between Tehran and Isla mabad. What causes these hidden tensions, then, are conflicting interests in Afg hanistan and horizontal partnerships between feuding Afghan social groups and re gional states like Pakistan and Iran. This rivalry has fuelled the fire between the Taliban and the Northern Alliance, causing tremendous harm to Afghan society at large. Conflicting visions of Iran and Pakistan have not changed in the stru ctural sense, but there appears to be a growing agreement on three specific issu es that may perhaps help to transform this relationship: the war on terror; the stability and reconstruction of Afghanistan; and energy trade. These are not ord inary problems. They are critical and have the potential to reshape the developm ent and security paradigms of the entire region. They key to all these issues is closer cooperation between Iran and Pakistan on the one hand, and between Afgha nistan and Pakistan on the other. While stabilising Afghanistan and creating a s hared regional interest in the future of this state may take a long time, and th e war against terrorism may require greater understanding than we have at the mo ment, the gas pipeline has a real chance of success. It can be a great infrastru ctural project, and the first of its kind to connect Pakistani consumers, indust ries and power plants to Iranian gas-fields. What are its potential benefits and drawbacks for Pakistan? A straightforward argument is that the pipeline project is a perfect match between a country with an energy surplus and an energy-defic ient

14 IPRI Factfile country, and that the deal is going to benefit both. It is a win-win situation. The real potential benefit of energy trade between Iran and Pakistan, with the p ossibility of its extension to India once New Delhi is on board, is in creating latent interdependence. The reason for naming the proposed gas pipeline as a peac e pipeline is because of its value in making the three countries interdependent o n one another, and thus subjecting old disputes to the economic rationalism requ ired in this day and age. Economic interdependence leads to much larger and comp lex relationships, forming an unbreakable web and creating dense partnerships, a nd causing a spill-over from one set of issues to another. It is of course not a n automatic process, and is subject to critical political decisions. And those d ecisions are about how to harmonise conflicting strategic visions that dominate in our region in all other aspects of interstate relations. We can also approach the issue of energy trade and larger economic cooperation by separating them fr om conflicting strategic pursuits, and then let the real economic benefits work on reshaping the respective strategic visions of each country. The outcome will depend on whether it is economic rationalism or divergent strategic views that s hape this partnership. It is better to realise economic benefits and let them sh ape the future course of our relationships than unsettled strategic problems and conflicts. But in a region like ours, competing security interests cannot easil y be sidelined from the decision-making process. Pakistan, however, runs the pot ential risk of over-dependence on Iranian gas, which may affect efforts to explo re and develop our own gas fields. If all or most of the Iranian gas is used for the power sector, as stated by the government, then our energy mix will remain lopsidedly dependent on imported fuel. Another serious question is why our ruler s continue to ignore our hydroelectric power potential and the Thar coal deposit s, some of the largest in the world. The lack of consensus that is often cited a s the reason for not utilising our own resources is also politically manufacture d, as the interests of important political players at a given point in time may demand something else.

IranPakistan Peace Pipeline 15 Before we find leadership with a national vision and the political will to help ourselves through our own resources, let us do what energystarved countries do: import. Rasul Bakhsh Rais, Daily Times (Lahore), May 26, 2009, http://www.dailytimes.com .pk/default.asp?page=2009\05\26\story_26-52009_pg3_2 G AZPROM AND IPI Gazprom, the largest extractor of natural gas in the world and the largest Russi an company, has indicated an interest in participating in the pipeline project c arrying gas from Iran to Pakistan. Gazprom has more than adequate experience in the field. By end 2004 Gazprom produced 19.4 trillion cubic feet, or 85 percent of Russias total gas production. With reserves of 28,800 cubic kilometres, Gazp rom controls 16 percent of the worlds gas reserves and after acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels (18.9 km3) of reserves, ranks behind only Saudi Arabia, with 263 billion barrels (41.8 km3), and Iran, w ith 133 billion barrels (21.1 km3), as the worlds largest owner of oil and oil equivalent in natural gas. It supplies gas to European countries and the Europea n Union as a whole gets about 25 percent of its gas supplies from this company. However concerns about funding of the Iran-Pakistan-India (IPI) gas pipeline wer e attributed to the Bush administrations resistance to this project which, in t urn, resulted in drying up of many a possible financial source. The Obama policy on this issue is not yet clear however it is relevant to point out that Gazprom has the necessary finances to turn this deal into reality as, apart from its ga s reserves and the worlds longest pipeline network (150,000 km), Gazprom also c ontrols assets in banking, insurance, media, construction and agriculture. There is speculation that Gazproms interest in the IPI pipeline project maybe due to Russias geo-political considerations: Russias resistance to the American supp orted Central Asia South Asia Regional Electricity Market (CASAREM) project that is focused on supplying energy deficient South Asia from energy surplus Central Asia. It maybe recalled that Gazprom, with the backing of the Russian governmen t, agreed to purchase all surplus energy from the Central Asian Republics as a c ountermove to US efforts to open Central Asias energy to South Asia.

16 IPRI Factfile This latest show of interest in the IPI by Gazprom, therefore, may be seen as a countermove to previous American efforts to stall the deal. However, there is an additional advantage to Gazprom for supporting the IPI deal. In the words of Ko mmersant, a Russian daily, "this project (IPI) is advantageous to Russia since i ts realisation would carry Iranian gas toward South Asian markets so that in the near future it would not compete with Russian gas to Europe." Spokesman of the company, Kupryanov, has confirmed Gazproms interest in the project. From the pe rspective of Pakistan, Gazprom may well provide an opportunity to translate IPI finally into reality. Gazprom not only has the expertise to lay the pipeline but also has access to financing if the government of Pakistan requests it. The 950 -kilometre pipeline to be laid inside Pakistan territory carries a cost of 1.2 b illion dollars if the pipeline is 42-inch that precludes Indias buy in into the project at some future date. A 56-inch pipeline costing 2 billion dollars would enable India to come into the project anytime later. Russian-Indian relations h ave traditionally been good, almost comparable to ours with China, and Gazproms involvement, if guaranteed, may reactivate Indian interest in the project - an interest that would pay Pakistan dividends in terms of annual transit fee of mil lions of dollars. Editorial, Business Recorder (Islamabad), June 1, 2009, http://www.brecorder.com /index.php?id=3756&currPageNo=1&query=&sea rch=&term=&supDate= F EASIBILITY OF IP G AS P IPELINE P ROJECT : C ONTRACT A WARDED TO G ERMAN F IRM Pakistan has awarded a contract to ILF Consulting Engineers of Germany for consu ltancy on Iran-Pakistan (IP) gas pipeline project to undertake project feasibili ty. The ILF will work in joint venture with Pakistan engineering consultancy age ncy, National Engineering Services Pakistan Limited (Nespak), Business Recorder learnt reliably here on Friday. Only a pre-feasibility study has been undertaken on the IP gas pipeline project and a bankable feasibility study and Front End E ngineering Design (FEED) are required to approach the investors and financiers f or tendering and procurement of materials, equipment and appointment of construc tion contractors.

IranPakistan Peace Pipeline 17 The ILF will undertake feasibility study, Environmental Impact Assessment, FEED and supervision of detailed route survey. The overall cost of services, through the international tendering, received by ILFNespak joint venture for both stages , amount to 48.9 million dollars 15.5 million dollars for stage-1 and 33 million dollars for Stage-2 - against the second lowest bidder, Worley Parsons 138.7 m illion dollars. ILF had taken part in the bidding process after pre-qualifying t woand-a-half years ago and was declared the lowest evaluated bidder. "But the aw ard of consultancy contract was delayed due to late signing of the gas sales pur chase agreement (GSPA) with Iran. The contract was signed in June 2009," said th e sources. According to sources, following the directions of the Steering Commit tee on IP on August 22, a meeting of all the stakeholders, including ISGS, SSGC and SNGPL, was held with the ILF-Nespak to discuss the options of allocating con sultancy work among various participants, which remained inconclusive. "Another meeting was held on October 28 in the Petroleum Ministry to sort out the issue, and after detailed deliberations, the decision was taken to award the contract t o ILF-Nespak joint venture," the sources said. The German-based ILF consultants have expertise in tunnelling, underground construction, pipeline engineering, fe asibility studies, social and environmental impact and detail design. The govern ment will initially arrange around 15 million-dollar financing through National Bank of Pakistan (NBP), for consultancy services to the ILF-Nespak on the IP gas pipeline project. The Finance Ministry has assured to make arrangement of finan cing in this regard. Pakistan has already agreed to import 750-mmcfd gas and wou ld seek additional 250-mmcfd gas from Iran on the request of Balochistan governm ent to meet Gwader Ports requirements. "If the Economic Co-ordination Committee (ECC) gave the nod for additional gas import from Iran, then the size of the pi peline would be increased and Pakistan will have to take up the issue of the siz e with Iran," the sources said. "If the volume of gas imports is increased, the size of the pipeline may have to be increased to 48 inches, said the sources. Th e cost of construction of 42-inch pipeline - from Iran to Nawabshah - was estima ted at 1.2 billion dollars. However, with increase in the size, the cost would r ise. At present, 48 percent thermal power generation is based on furnace oil, ou t of which about 62 percent is imported. One bcfd gas will generate an estimated 5,000-mw electricity.

18 IPRI Factfile Recent studies have shown that the imported gas would be the most economical fue l compared with other imported fuels. Zafar Bhutta, Business Recorder (Islamabad), November 14, 2009, http://www.breco rder.com.pk/index.php?id=986351&currPageNo=1&q uery=&search=&term=&supDate= W ILL C HINA J OIN THE I RAN -P AKISTAN -I NDIA P IPELINE ? For over a decade Iran, Pakistan and India (IPI) have took pains at negotiating a major pipeline deal whereby Iran would send natural gas from its territory to the region. Yet geopolitical and commercial issues have repeatedly prevented the deals fruition despite Tehrans growing need to diversify gas sales to Asian m arkets and Asian countries desire to find a stable, reliable source of gas suppl ies. In recent years, Indias participation in this project has become more uncert ain, which is partly responsible for the long delay that the project has suffere d to date. Irans repeated attempts to raise the price of gas, US pressure on Indi a to refrain from participating in the pipeline, external skepticism about Irani an capability to fill the pipeline as it promises, Indian concerns about the ove rall stability of Pakistan, and in particular, the possibility of terrorism in P akistans Balochistan province through which the pipeline would travel all contrib uted to Indias angst (Janes Intelligence Review, February 11). Indeed, Iran rece ntly warned India that there is a limit to its patience in waiting for New Delhi to decide (Thaindian.com, February 9). Iran was apparently able to present this ultimatum because it believes that it now has the China card in its deck. In earl y February, Iranian Foreign Minister Manucher Mottaki reportedly said that Iran was ready to start the pipeline at any timeeven without Indiaand urged Pakistan no t to heed US pressure against the pipeline as China could soon replace India in the deal (Press Trust of India, February 8). Background Iranian President Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zar dari inked a $7.5 billion agreement in Tehran on May 23, 2009 to transfer gas fr om Iran to Pakistan. According to the deal, Iran will initially transfer 30 mill ion cubic meters of gas per day to Pakistan, but will eventually increase the tr ansfer to 60 million cubic meters per day. The pipeline will be supplied from th e South Pars field. The initial

IranPakistan Peace Pipeline 19 capacity of the pipeline will be 22 bcm of natural gas per annum, which is expec ted to be raised later to 55 bcm (Zawya.com, February 5). After many months of n egotiations, on February 11, 2010 Islamabad and Tehran were able to finalize the agreement on the issues, including the issuance by Pakistan of a "comfort lette r" that provided Iran with the assurance that Indiaor Chinacould be brought into t he project later. The two parties have vowed to sign the formal agreement by Mar ch 8 in Ankara, Turkey. The News reported: Under the comfort letter, the governm ent of Pakistan would allow the third country to import gas through [the] IP [Ir an-Pakistan] line in case any country in future comes to join the project, but t he permission will be subject to the gas tariff and transit fee to be worked out as per best practices of that time (The News [Pakistan], February 15). Chinese Interests in the IPI Pipeline Perhaps the most interesting aspect of Irans most recent announcement is that Chi na has yet to comment publicly on the pipeline except that it is studying the Pa kistani proposal. And that was in 2008. Chinese foreign minister, Yang Jiechi sa id at that time: We are seriously studying Pakistans proposal to participate in th e IPI gas pipeline project (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008). Pakistan clearly wants China to join the pipeline for many reasons. Is lamabad desperately needs the gas that might not come otherwise if there is no t hird party to make the deal profitable to Iran. Second, it would gain much reven ue from the transit fees for the gas going to China and benefit considerably fro m the ensuing construction of infrastructure within Pakistan. Third, it would fu rther solidify its all-weather relations with China. Those goals have always been part of Pakistans foreign policy and explain not only its interest in the origina l pipeline plan but also its previous invitations to China to join the project. The prospect of an invitation to China was also used in the past to galvanize In dias decision-making process regarding the pipeline (Steelguru.com, May 3, 2008; Asia Times Online, March 6, 2008). Throughout the spring of 2008, former Pakista ni President General Pervez Musharraf and his government frequently courted Chin ese leaders to join the pipeline project, a pitch that Musharraf also tied to an earlier proposal of establishing a corridor linking Pakistan to China through r ail, road and fiber optics. At that time, China promised to consider the proposa l and then asked for more information, but did nothing else,

20 IPRI Factfile leaving the issue in abeyance (Indian Express, April 15, 2008; The Indian, June 19, 2008). Subsequently, Pakistani media reports claimed that China was keen on joining the pipeline and would send a delegation to negotiate the deal, but clea rly, nothing came of it (The Indian, June 26, 2008). In 2009, Irans ambassador to India, Seyid Mehdi Nabizadeh, told Indian journalists that China was interested in the pipeline, but he too refused to confirm if talks with China were taking place (The Indian, September 15, 2009). Based on this precedent, it may be possi ble that these Pakistani and Iranian gambits were spurious to begin with and its purpose was to pressure India or entice China into joining the pipeline project . There is considerable interest among external observers in the pipeline and fr om Chinese officials have sporadically expressed an interest in it. For example, Chinas ambassador to India in 2006, Sun Yuxi, said that China has no objections to the IPI, while Indias minister for State Planning M.V. Rajashekaran, also said that once the pipeline is completed it could be extended to China. Gazprom and the Russian government have long since indicated a desire to participate in send ing oil and/or gas to the subcontinent through the IPI (ITAR-TASS, April 17, 200 7). Indeed, one Russian official, Gazproms man in Tehran, Abubakir Shomuzov, has even advocated extending the IPI pipeline to China to tie Russia, China, India, Pakistan and Iran together in a very big project having major strategic implicat ions as well as a huge number of consumers. Presumably, such statementsif not pla nsare intended to mollify Chinese concerns about the possibility of Russian energ y being diverted from it to India (The Hindu [Internet Version], May 7, 2007). N evertheless, if one correlates Chinas recent maneuvers in Central Asia concerning pipelines with its deals with Iran, it is clear that China is contemplating a p ipeline network running from Iran either through Central Asia, or prospectively through Pakistan and/or India to China (Central Asia Caucasus Analyst, September 19, 2007). In this context, the IPI pipeline poses several risks and opportunit ies for Beijing. If India exited the pipeline, that would lessen Irans leverage t o drive a hard bargain on gas prices. At the same time, as part of the overall s trategy to build pipelines from Iran to China, or at least to Gwadar from where gas or oil could be shipped directly to China, Chinese participation would creat e a new overland energy link that could complement Chinas energy diversification strategy. Nevertheless, the project also faces several political and logistical difficulties that could scuttle Chinese participation. The pipeline is planned t o traverse a very

IranPakistan Peace Pipeline 21 difficult terrain in Pakistans Gilgit region. That would increase the costs and t ime required to eventually connect the pipeline to Xinjiang. Moreover, the risks inherent in Pakistan and Iran also pose problems. The massive investment requir ed to link China to the pipeline would be susceptible to many risks since it fal ls along a major fault line of instability, as there could be large-scale terror ism in the territory of the pipeline or more generally from a mass civil upheava l in Pakistan. In view of these positive and negative aspects to the deal, some observers suggest that Beijing might just be feigning interest in the IPI pipeli ne to get a better deal in negotiations with Russia on relatively safer SiberiaChina gas pipelines. Certainly if the prospect of China obtaining a secure and s table supply of gas from Iran would reduce its need to get that gas from Russia and give it even more leverage over Russia in the current negotiations on gas pi pelines from Siberia to China than it already possesses. There is another aspect to this deal too. China has recently stuck its neck out for Iran in its call fo r continuing negotiations with Iran over its nuclear enrichment programs irrespe ctive of the fact that Tehran is clearly defying the IAEA and the offers of the six negotiating partners (United States, Great Britain, France, Germany, and Rus sia). On February 24, 2010 Foreign Ministry Spokesman Qin Gang stated that, "Chi na holds that the parties should continue to step up diplomatic efforts in a bid to maintain and promote the process of dialogue and negotiations," said Qin, "C hina hopes the parties demonstrate more flexibility and create conditions conduc ive to a comprehensive and proper solution to the Iran nuclear issue through dip lomatic means" (China Daily, February 24). Chinese sources also report that Iran is able to resist the United States because the political situation in Iran is stabilizing (Xinhua News Agency, February 24). This suggests a more optimistic v iew of the domestic situation in Iran than might be the case elsewhere. Likewise , it appears that China suspects US motives in the region. High-level visits by US Secretary of Energy Steven Chu to Saudi Arabia and by another highlevel Israe li delegation to China aim to wean China away from Iran in return for the United States brokering increased oil exports from Saudi Arabia to China. The Chinese media apparently considers this a trap to get China to renounce its principles f or transitory economic gain (China Daily, February 24).

22 IPRI Factfile Conclusion At the same time, if China did become a full partner in the IPI pipeline that wo uld offer it another opportunity to build on Beijings so-called strategy of build ing what has been called a string of pearls across the Indian Ocean. Chinese offic ials have publicly stated their desire to turn the Chinese-built Pakistani port of Gwadar into an energy hub. China also has substantial interests in overland t ransport links in Pakistan through the Karakorum Highway and participation in th e IP pipeline would extend those interests deeper. Indeed, many observers in New Delhi and Washington view Sino-Pakistani collaborations to build naval faciliti es and oil refineries at Gwadar as a prelude to the establishment of a Chinese n aval base there. Whether this is true or not, if China joins the IPI project, th en the odds of China supporting American efforts to isolate Iran would effective ly be reduced to zero because it would depend too much on Iranian gas, in additi on to its recent oil contracts to antagonize Iran by siding with Washington. Whi le we wait to see how China decides to play this issue, the United States needs to understand that Beijings decision to join or stand aloof from this pipeline will have major geopolitical repercussions and comparable geo-economic repercuss ions across Asia, another sign not only of the integration of south and southwes t Asia with East Asia, but also of Chinas rising importance as the nexus of the A sian continent. Jamestown Foundation, Stephen Blank, March 5, 2010, http://www.jamestown.org/pro grams/chinabrief/single/?tx_ttnews[tt_news]=3 6122&tx_ttnews[backPid]=25&cHash=0 e88d5e465 IP P IPELINE P ROJECT TO C OST $3-4 B N Federal Minister for Petroleum and Natural Resources Naveed Qamar said total est imated cost for Iran-Pakistan (IP) gas pipeline project is $3-4 billion and this project would start likely in the next three to four years, while Turkmenistan gas pipeline project will be discussed next month. While talking to media after addressing the 25th annual general meeting and conference held by Pakistan Socie ty of Development Economists (PSDE) here on Tuesday, he said Pakistan and Iran w ere going to sign Iran-Pakistan (IP) gas pipeline agreement in Istanbul today (T uesday) and in the next phase the survey of the site and documentation work woul d start soon.

IranPakistan Peace Pipeline 23 He said the Sui Northern Gas Pipeline Limited (SNGPL) and Sui Southern Gas Compa ny Limited (SSGC) would be responsible to complete this project due to having 50 percent share each in IP gas pipeline project. Government of Pakistan (GoP) wou ld ensure to provide guarantee of $3-4 billion investment for Iran-Pakistan (IP) gas pipeline project. While answering a question, he said no further progress c ould be achieved on Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline proj ect due to insurgencies in the region but hopefully the project would be launche d next month. We will try our level best to utilise all bilateral options to fina lise this project, he maintained. Zeeshan Javaid, Daily Times (Lahore), March 17, 2010, http://www.dailytimes.com. pk/default.asp?page=2010\03\17\story_17-32010_pg5_8 I RAN AND P AKISTAN S IGN H ISTORIC P IPELINE D EAL Pakistan and Iran have signed an agreement for the construction of a much-delaye d natural gas pipeline, officials say. The $7.6bn project is crucial for Pakistans growing energy requirements. The co untry has suffered severe electricity shortages. The deal was signed between the two countries in Turkey. The pipeline was initially intended to carry gas on to India, but Delhi withdrew from negotiations last year. Peace Pipeline Pakistani Petroleum and Natural Resources Minister Naveed Qmar described the sig ning of the deal as a "milestone towards meeting energy needs of the country". T he pipeline will connect Irans South Fars gas field with Pakistans Balochistan and Sindh provinces. Officials say the treaty was delayed because Pakistan had been unable to arrange funding. Under the terms of the deal, Iran will provide 7 50m cubic feet of gas per day to Pakistan. The line should become operational by 2015. Each country will be responsible for building the section of pipeline tha t runs through its own territory.

24 IPRI Factfile Labelled the "peace pipeline," the project was first mooted in the 1990s and ori ginally would have extended from Pakistan to India. Correspondents say that Delh i has been reluctant to join the project because of its long-running distrust of Pakistan, with which it has fought three wars since independence in 1947. India has instead invested in civilian nuclear reactors to help fulfil its increasing energy demand. It also signed a landmark civilian nuclear deal with the United States in 2008. Pakistan has argued that it too should make a similar deal with Washington, but correspondents say that so far the US has not shown much enthusi asm. Under the terms of the deal signed on Tuesday, Pakistan is allowed to charg e a transit fee if the pipeline is eventually extended to India. Correspondents say the deal is not likely to be welcomed by the US - because of Tehrans suspec ted ambitions to build nuclear weapons. Iran denies any such ambitions. BBC News, March 17, 2010, http://news.bbc.co.uk/2/hi/8572267.stm P IPELINE A GREEMENT It is comforting to know that the much-delayed gas pipeline project between Paki stan and Iran is now ready to roll. The deal was signed in Istanbul on Tuesday w here the Pakistani side was represented by its Secretary Petroleum. It is the re sult of the initial agreement signed between President Zardari and President Mah moud Ahmedinejad in Tehran last year. Minister of Petroleum and Natural Resource s Naveed Qamar was euphoric and termed the development as a landmark that would go a long way in fulfilling the countrys energy needs. It is good to know that th e construction work would start this year and it would be operational by 2014. S ince all the hurdles have now been removed, it is hoped that things would go acc ording to plan and both governments would be able to meet that deadline. Concurr ently, one cannot help but think of the US, which had been opposing the IPI toot h and nail on account of its standoff with Iran. It has left no stone unturned t o stymie the project ever since it was conceived. As part of its design to isola te Iran, it persuaded Islamabad and New Delhi to opt for the unrealistic Turkmen istan-Afghanistan-PakistanIndia pipeline instead, despite knowing that the unres t in Afghanistan was

IranPakistan Peace Pipeline 25 a big hindrance. Following the US agenda, India at present has decided to quit; however, it is heartening to note that Pakistan and Iran have planned to go ahea d. If the past is any guide, the US will definitely try to sabotage the project for which caution is a must. Smooth process of implementation from now on to its completion will do credit to the government. Most important, given the power sh ortfall we are facing, it would turn out to be a real blessing for us. The gas w ould be used for energy generation and would add 5000MW of energy to the nationa l grid. Though by the time the pipeline becomes operational, our supply and dema nd gap would have also increased, it would ensure that the situation remains und er control. Editorial, Nation (Islamabad), March 18, 2010, http://www.nation.com.pk/pakistan -news-newspaper-daily-englishonline/Opinions/Editorials/18-Mar-2010/Pipeline-agr eement I RAN -P AKISTAN G AS P IPELINE Pakistan and Iran signed the Heads of Agreement (HoA) and Operational Agreement (OA), in Istanbul, on Tuesday. This, it was revealed, would bring the laying of the pipeline that would make gas available to fuelstarved Pakistan, from gas sur plus Iran, one step closer. There is little doubt that if the Iran-Pakistan gas pipeline becomes operational, then Pakistans fuel supply woes and the ongoing d eeply worrying power demand-supply gap would be bridged. However, this particula r hapless project has been held hostage to the signing of non-binding agreements since its conceptualisation and even after the passage of two decades since it was first proposed, not a single pipe has been laid to give it even a semblance of reassuring reality. In this context, Naveed Qamar, who signed the HoA and OA on behalf of Pakistan, would forgive the country for not considering this a majo r landmark achievement. Pakistan has learned, much to its chagrin, of the many s lips between the cup and the lip as far as this project is concerned. It was fir st conceptualised as far back as in 1989 by Rajendra Pachauri, an Indian nationa l, together with Ali Shams Ardekani, former Deputy Foreign Minister of Iran, who then proposed it to their governments the following year. The pipeline was prop osed to start from Asalouyeh (South Pars Field) and stretch over 1100 kilometers through Iran. In Pakistan, it was

26 IPRI Factfile to pass through Balochistan and Sindh. The initial capacity of the pipeline was to be 22 bcm of natural gas per annum, expected to be raised later to 55 bcm, at a cost of US $7.5 billion. Thence began a series of disagreements between the t hree participating countries that created hurdles in the way of its launch. The first area of disagreement was the price. In July 2006, Iran demanded US $7.20 p er million British Thermal Unit (BTU), a price offer the Indians claimed was 50 percent higher than the prevailing market price in India and, therefore, not eco nomically viable. In 2005, the then Indian Petroleum Minister Mani Shankar Aiyar announced that his country may withdraw from the gas deal. "We will not buy gas from Iran if we cannot sell it in India," he is credited with saying. Aiyar cla rified that Iran wanted to charge as much for natural gas as it does for LNG (ab out $4 per million BTU), whereas the main Indian consumers - fertiliser and powe r sectors - would be unwilling to pay more than $3 per MBTU. With the addition o f transportation and transit charges to the Iranian price, the Minister added, t he gas would end up costing $4.50 per MBTU. He also pointed out that as India an d Pakistan will need approximately 200 million standard cubic meters of gas dail y, Iran should offer a special price for such a large order. In February 2007, t he three countries agreed to US $4.93 per million BTU, however details regarding price adjustment, in case the international price of gas/alternative fuels rose , was not firmed up and continued to be a sore point in negotiations. Pakistan h as, however, agreed to the latest Iranian price on offer and one would hope that appropriate cost-benefit analysis would have been undertaken to ensure that the gas price is feasible. The second area of disagreement erupted when India expre ssed concern over its energy security with respect to this project, as the pipel ine would have passed through its nuclear rival Pakistan, prior to reaching Indi a. The implications of this on Pakistan are considerable, as we would lose over 200 million dollars per annum on transit fees. And finally, American sanctions a gainst Iran, that have continued to this day, would imply continuing US pressure for scuppering the deal. India has already opted out of the project, though all three areas of disagreement/concern were probably responsible for India abandon ing the project.

IranPakistan Peace Pipeline 27 For Pakistan, there is an additional element of concern with respect to ensuring the security of the gas pipeline through our restive Balochistan province, whic h may further compromise our cash-starved governments capacity to attract adequ ate investment for the laying of the pipeline. One sincerely hopes that the Paki stan government would revisit the cost and benefit that would accrue from this p roject in an effort to ensure that the gas deal is in our best interest. Editorial, Business Recorder (Islamabad), March 20, 2010, http://www.brecorder.c om/index.php?id=1033849&currPageNo=1&query=& search=&term=&supDate= IPI: T HE B ALOCH P ERSPECTIVE Balochistan, the size of Texas and that accounts for 44 per cent of Pakistan and 16 per cent of Irans landmass, is a strategically important area. By virtue of i ts energy resources and its location, it is key to the energy supply to South As ia, including Pakistan. The countrys mounting energy crisis and the growing deman d for energy security in the region have magnified Balochistans economic and stra tegic importance. Yet without addressing the grave political challenges in the p rovince, Islamabad is pursuing an ambitious plan to import one billion cubic fee t (bcf) of gas per day through the 2,100km-long Iran-PakistanIndia (IPI) gas pip eline. Balochistan is the only potential land route for the proposed $1.2bn pipe line. A major part some 1,500km of the 2,100km-long conduit which will connect I rans Pars gas field to Pakistans main distribution system in Nawabshah, will cross Baloch territory in Iran and Pakistan. Islamabad has been pursuing the IPI proj ect since 1993. Initially, a memorandum of understanding was signed for the cons truction of an Iran-Pakistan gas pipeline, a project that India later wished to join. The project envisaged a 2,670km land pipeline with a 3,620 million cubic f eet per day (mmcfd) gas transmission capacity. Pakistan and Iran signed the agre ement and an operational accord in Istanbul on March 17. However, it is not clea r how these new agreements are different from the ones inked during President As if Ali Zardaris visit to Tehran in May last year, following which officials from the newly-formed Inter State Gas System (ISGS) quietly signed the controversial gas sale-purchase agreement in Istanbul.

28 IPRI Factfile The policymakers in Islamabad need to take a very realistic approach towards ene rgy security. Amongst the major issues is the seemingly endless political confli ct in Balochistan, along with US concerns, high pricing and the threat posed by religious militants. If billions of dollars are invested in the pipeline before addressing these chronic issues, the whole project is bound to backfire. Islamab ad has, as usual, committed a significant political blunder by overlooking the i mportance of Baloch consent on the proposed gas channel. Baloch opposition to su ch a trans-national pipeline was voiced as far back as 2005 when veteran Baloch nationalist Akbar Khan Bugti said that only the goodwill of the Baloch people can allow the proposed gas pipeline from Iran and Central Asia to India to pass thr ough their soil. Sanaullah Baloch, Dawn (Islamabad), March 22, 2010, http://www.dawn.com/wps/wcm/ connect/dawn-content-library/dawn/thenewspaper/editorial/ipi-the-baloch-perspect ive-230 P IPELINE P OLITICS The US is understood to be displeased with the idea of Pakistan obtaining gas fr om Iran and has indicated that such a deal is not appropriate at this time. We a ll know why this idea has surfaced. Washington is quite evidently eager to see P akistan playing along with its strategy to isolate Iran and add to the pressure it has faced for refusing to bow down to external dictates. This is a blatant ca se of tampering with Pakistans internal affairs that it must resist at all cost s. At present, more than anything else, Pakistan needs energy. The lack of gas a nd power has already crippled many sectors of the economy. It has also added to the distress of people. Islamabad needs to direct urgent attention to solving th e problems the energy crunch has created. Indeed too much time has already been lost. Impatience is growing. Tehran meanwhile asks why its offer of power, at ra tes cheaper than those put forward by anyone else, is not being accepted. It is quite possible the answers lie in Washington. Islamabad needs to convince people in the US capital that it is interference of this kind which makes the US a nat ion seen with immense suspicion within the country. As a neighbour to Iran, Paki stan has a great deal to gain by maintaining close ties with it and indeed by bu ilding on the foundation that already exists. The pillars which hold this up mus t not be allowed to crumble. There is another facet to all this. Islamabad

IranPakistan Peace Pipeline 29 must place the interests of its people on a higher priority than the interests o f another country. The pipeline is potentially of prime importance to the people . There is every reason then to go through with it, indeed to step up endeavour in this regard, and by doing so send out a clear message to the world that Pakis tan is a sovereign nation which does not take orders from anyone else. Editorial, News International (Rawalpindi), April 3, 2010, http://www.thenews.co m.pk/daily_detail.asp?id=232339 U NREALISTIC A DVICE Coming in the wake of the strategic dialogue last month, Americas advice to Pakis tan not to proceed with the Iran gas pipeline project sounds rather odd. Pakista ns energy needs figured in the high-level dialogue in Washington, and America mad e it known that energy was one of the sectors where the US would cooperate with Pakistan to reduce the demand-supply gap. Yet on Tuesday, Assistant Secretary of State Robert Blake told newsmen that it was not the right time for Pakistan to go ahead with the pipeline project with Iran, and that Islamabad should seek other alternatives. There is no space here to go into the details of what Pakistan has been doing although failing in its attempts to tap a variety of resources for ma naging the acute power crisis that has hit the economy. Pakistan cannot blame ot hers for its failure to develop its considerable hydro-electric potential. The T har coal project for power generation is still years away from being realised. A lthough a subject of some interest, solar energy too has yet to see the light of day. Nuclear power could bail out Pakistan, but unfortunately the US-led group of donors has placed Islamabad virtually under sanction. The only country willin g to cooperate with Pakistan in the nuclear sector is China, but Beijings ability in this respect is limited. Islamabad thus has no choice but to seek other alter natives and get gas and electricity from energy-surplus countries. Tajikistan too has been approached by Pakistan for supplying electricity, and Islamabad is neg otiating with Qatar for importing LNG, more so because the Turkmenistan gas pipe line project is unlikely to materialise because of the war in Afghanistan. With its own proven gas reserves dwindling Pakistan cannot go back on the Iran deal,

30 IPRI Factfile notwithstanding Indias virtual sabotage of the project when it pulled out under A merican pressure. New Delhi could afford to do so, because it has been richly re warded by Washington through a fabulous nuclear deal. Since the Bush era, Americ an officials have made it abundantly clear that a similar nuclear deal with Paki stan is out of the question. Notwithstanding the recent media reports, there is no evidence that indicates a possible change in the American attitude on the iss ue. The Iranian pipeline will do nothing more than supply gas to Pakistan, and i t would be folly to see too much in it and link it to Iran and the nuclear issue . China and Russia, too, have reservations over Tehrans nuclear ambitions, but th at has not stopped them from having lucrative power deals with Iran. Editorial, Dawn (Islamabad), April 3, 2010, http://www.dawn.com/wps/wcm/connect/ dawn-contentlibrary/dawn/the-newspaper/editorial/unrealistic-advice-340 US O BJECTION TO P AK -I RAN G AS P IPELINE The United States has once again objected to Pakistans deal for a $7.5 billion ga s pipeline with Iran and its assistant secretary of state Robert Blake advised Isl amabad at a briefing in Washington the other day that this is not the right time t o have transaction with Tehran which is in conflict with the international commu nity over its nuclear programme. The US itself would not either encourage large investments in any Iranian project, Blake said. Pakistan and Iran concluded the deal after 14 years of delayed negotiations over the Iran-Pakistan-India (IPI) g as pipeline project that concluded last year. Iranian President Mahmoud Ahmadine jad and his Pakistani counterpart, Asif Ali Zardari, signed the agreement in Teh ran on May 23 for the supply of about 750mn cubic feet of gas a day to Pakistan by 2014. Pakistan has already appointed a German designer for the pipeline that would enter Pakistan from its border near Gwadar area to Nawabshah, which is the hub of gas pipelines in the country. The 56-inch diameter pipeline is 2,700-kil ometre in length, covering around 1,100 kilometres in Iran, 1,000 kilometres in Pakistan and around 600 kilometres in India. Islamabad has said it will use Iran ian gas for the generation of some 5,000MW of thermal power and save about $1bil lion of import of furnace oil for the purpose. The project initiated in 1995 but India withdrew last year after the US concluded a civil nuclear deal with New D elhi. However, Iran and Pakistan have left room for India to join

IranPakistan Peace Pipeline 31 later. This is not the first time that Washington has opposed the project. The U S administration has succeeded in isolating India. It now wants Pakistan to foll ow suit at a time when it is suffering a huge power shortfall and the US adminis tration has committed only peanuts at the end of recent talks in Washington. Not only the US administration has virtually declined Islamabads request of a civil nuclear agreement to acquire nuclear energy, it committed a meagre assistance of $125 million for the up-gradation of powerhouses and transmission lines and onl y promised the repair of power stations and 11,000 agricultural irrigation pumps . The opposition to Iran-Pak gas pipeline in this situation means that Washingto n wants Pakistan to continue languishing in dark and degradation; a client state that is subservient to its imperialist policy of hegemony. The US is emboldened in its attempt to dictate Pakistan because no administration here has challenge d its designs in more than six decades; and Pakistans spineless foreign policy ha s always failed in safeguarding even the most vital of national interests. Produ cing cheap electricity is the inalienable right of Pakistan and if Iran is ready to help in meeting huge power shortage, the US has no business to impede Pakist ans way to lessen shortfalls in electricity generation. It would be ironical if I slamabad concedes to the wish of a country thousands miles away and ignores the cooperation of a neighbouring state. Pakistan must dismiss with contempt the Was hington plea against the Pak-Iran gas pipeline as this project is in the countrys interest and no plea is greater than progress and the prosperity of the people. Editorial, Frontier Post (Peshawar), April 3, 2010, http://www.thefrontierpost.c om/News.aspx?ncat=ed&nid=68 F RIVOLOUS O BJECTIONS TO G AS D EAL WITH I RAN At last, the cat is out of the bag. The United States, which has been dropping s trong hints of providing financial and technical assistance to Pakistan in overc oming the ongoing energy crisis, has raised objections to Islamabads deal with Te hran for import of gas. US Assistant Secretary of State Robert Blake, on his ret urn to Washington from a trip to Pakistan, Afghanistan and India, told newsmen t hat the United States has advised Pakistan to seek other alternatives because of Irans dispute with the international community. Americans used similar tactics t o dissuade India from joining the trilateral gas pipeline project despite the fa ct that Indias fast growing

32 IPRI Factfile economy badly needs energy security. Both India and the United States used IPI p roject as a bargaining chip during negotiations on nuclear accord. In this backd rop, one can understand why the United States, unlike its previous stand, is sho wing willingness to discuss the possibility of nuclear cooperation with Pakistan as well. We would, however, warn the Government not to fall into the US trap an d move swiftly on Iran gas pipeline project, which is of critical significance f or economy of Pakistan. Our domestic gas reserves are depleting fast and there i s no progress towards implementation of much-talked-about import of gas from Tur kmenistan because of uncertain situation in Afghanistan, which is unlikely to im prove in the near future. The severe shortage of gas witnessed by the country es pecially during recent winter is a clear indication that domestic, commercial an d industrial consumers would continue to suffer for years if no tangible steps w ere taken to meet the gas shortage. Pakistan and Iran have spent years in finali zing the deal and prudence demands that the project should be implemented withou t loss of further time as even Chinese have shown interest to fund the project. Americans have their own interests but Pakistan must steadfastly pursue things s trictly in accordance with its national interests. We hope that the Government w ould be able to convey to the United States that the project has nothing to do w ith international politics, rather it is a project of economic significance to P akistan. Editorial, Pakistan Observer (Islamabad), April 3, 2010, http://pakobserver.net/ detailnews.asp?id=23691 P IPELINE P OLITICS If one idiom has been overused in the context of US-Pakistan relations, it is th at of the carrot and stick. Often deployed in a military context, the phrase ref ers to aid, weapons and other defence equipment the carrots are meant to soften the blow of sticks demanding more army action against terror networks. Now that the US is rebranding its relationship with Pakistan by placing new emphasis on c ivilian energy investment, the idiom is once again the catchphrase of the day. R ecently, US Assistant Secretary of State Robert Blake announced that Washington had advised Islamabad to seek alternatives to the proposed Iran-Pakistan pipelin e. According to an operational agreement for the proposed pipeline signed betwee n Islamabad and Tehran last

IranPakistan Peace Pipeline 33 month, Iran will supply 750 million cubic feet a day of gas to Pakistan for 25 y ears. Blake explained that owing to the ongoing dispute between Tehran and the i nternational community regarding Irans nuclear ambitions, the US is opposed to an y large investments in Iranian projects. This is yet another issue on which the Obama administration is echoing the views of its predecessor, George W. Bush. Th e former administration too resisted the pipeline and exerted pressure on both P akistan and India to abandon the project. The US governments decision to wave a s tick at the pipeline project has savvy timing, following the weeklong strategic dialogue in Washington, where Pakistan was permitted to nibble at a few carrots. During those discussions, the US reiterated its commitment to helping Pakistan meet its energy needs, pointing to $125m provided for energy projects. Far more importantly, Washington did not outright reject Pakistans demand for a civilian n uclear deal akin to the 2008 US-India civilian nuclear deal (though it did not m ake any commitments either). Some analysts have concluded that Pakistan is now f aced with a neat either/or option, which would involve abandoning the pipeline p roject in favour of a civilian nuclear deal with the US. Nothing, however, could be further from the truth. The Iran-Pakistan pipeline will have profound implic ations on the geopolitics of energy and the balance of power in the region. Ther e are many reasons why swapping out such a complex project, which has been in th e works since 1994, for another energy deal is difficult and inadvisable. Pakist an is already suffering serious energy shortages, with an electricity shortfall of over 3,000MW. Only 60 per cent of Pakistani households currently have electri city, and only 18 per cent have access to pipeline gas for heating. In short, Pa kistan needs the pipeline project, which is scheduled to be completed within fiv e years, as well as other civilian energy deals with the US, China and the Centr al Asian states. Moreover, a US-Pakistan civilian nuclear deal remains, so to sp eak, a pipedream. During the strategic dialogue, Washington entertained Islamaba ds request, but made no overtures to indicate that it would ever be fulfilled. It doesnt help that if a deal were to be negotiated, it would be saddled with condi tions that Pakistan is not prepared to accept, such as international access to D r A.Q. Khan and complete disclosure about all proliferation activities.

34 IPRI Factfile Islamabad also cannot decline to engage with Tehran on the pipeline project owin g, ironically enough, to Washingtons own concerns about Pakistans shabby non-proli feration record. After all, a country that is not a signatory to the Nuclear Non -Proliferation Treaty, and which cannot be trusted by the US to receive a civili an nuclear deal, is hardly in a position to chastise Tehran for its own desire t o attain nuclear technology. Pakistan must view US objections to the pipeline pr oject with scepticism, for they exist in a broader regional context. The pipelin e will, for example, help Iran check growing US influence in Afghanistan, Pakist an and India. By exploiting its vast gas reserves, Iran can become economically independent and exert political leverage, and the last thing Washington wants to deal with is a Tehran enjoying more regional clout and therefore defying US pre ssure. Rather than toe the Obama administrations line, Pakistan should consider t he fallout of a more influential Iran on its own terms. For example, sectarian t ensions are on the upswing across the country, and it would be nave to think such violence is immune to outside interference. Militant activity also persists acr oss the Pakistan-Iran border, and joint intelligence could prove useful. Strong diplomatic relations with Iran resulting from an energy investment project could help maintain security. That said, Pakistans involvement should depend on which other parties sign on to the pipeline project. Although India boycotted project talks in 2008 citing concerns about gas pricing and secure delivery, it has not closed the door on participating, and trilateral meetings to allay Indias concern s are scheduled for next month. Pakistan should pressure Iran to meet Indian dem ands and restore the project to its original trilateral dimensions, for mutual e nergy dependence can help promote India-Pakistan peace. A viable gas deal will c heck tensions arising from Pakistan and Indias dispute over water resources, part icularly the Kishenganga power project. Moreover, knowing that its gas reserves are running through Pakistan will encourage New Delhi to boost regional security , and stay away from its alleged role in Balochistan. Indian involvement in the pipeline will also make the project more financially viable and operationally tr ansparent and efficient. Pakistan would generate revenue by charging India trans it fees to ensure the safe delivery of gas at its border. Such payments could se t

IranPakistan Peace Pipeline 35 the stage for trade and investment beyond the energy sector, which are ultimatel y the keys to long-term peace with India. If India refuses to join the pipeline project, Pakistan should push forth its proposal to secure Chinas involvement in the project. The pipeline could further strengthen Islamabad and Beijings all-weat her relationship for several reasons. The pipeline would be seen as a quid pro qu o for Chinese investment in Pakistans energy sector in the form of two nuclear po wer reactors pledged in October 2008. China is keen to secure energy supplies th at can be shipped overland since the US Navy exerts great control over the seas and could interrupt Chinese energy flows. Further afield, the pipeline project c ould help ease Sino-Russian tensions as it would make competition over Central A sian gas reserves unnecessary. Given the far-reaching geopolitical ramifications of the pipeline project, and especially its potential for boosting regional sec urity, Pakistan should not jump to abandon the project on the USs directive. Nor should Islamabad engage in a tit-for-tat dialogue, offering to set aside the pip eline project for a civilian nuclear deal. Instead, our government should remind Washington and the international community that multilateral energy agreements encourage responsible and efficient consumption and, in the long run, encourage investment and innovation in clean and renewable energy. The US should not aim t o monopolise foreign investment in Pakistans energy sector, not should it stand i n the way of regional energy resource cooperation. Huma Yusuf, Dawn (Islamabad), April 4, 2010, http://www.dawn.com/wps/wcm/connect /dawn-contentlibrary/dawn/the-newspaper/columnists/huma-yusuf-pipeline-politics440 US D IKTAT ON I RAN P IPELINE N OT TO BE E NTERTAINED The Foreign Office said on Saturday Islamabad would not entertain pressure by Wa shington on its decision to have cooperation with Iran in the energy sector. We w ould like to have cooperation with Iran in all areas. If there are opportunities , Pakistan will pursue those. We have concluded the IP gas pipeline project with Iran. This is our sovereign decision and the government of Pakistan will take d ecisions only in consonance with its own national interests, Foreign Office spoke sman Abdul Basit said at a media briefing.

36 IPRI Factfile The remarks came on the eve of Prime Minister Yousuf Raza Gilanis meeting with Pr esident Obama. The meeting precedes a nuclear security summit scheduled for Apri l 12 and 13 in Washington. The meeting is a follow-up to last months strategic di alogue and part of efforts to transform the transactional nature of Pakistan-US relationship to a partnership. Last month the US counselled Pakistan against ent ering into a deal with Iran for building a multi-billion-dollar gas pipeline. We do not think it is the right time for doing this kind of transaction with Iran, U S Assistant Secretary of State Robert Blake said recently. He said Pakistan had been asked to seek alternatives because of a dispute over Irans nuclear programme . The situation poses a complex test for Pakistans diplomacy as the country aspir es to have a civilian nuclear energy package from the US while pursuing the gas pipeline project with Iran. Our country is facing energy deficit. We are explorin g all possible avenues to overcome our energy problem, the spokesman said. Baqir Sajjad Syed, Dawn (Islamabad), April 11, 2010, http://www.dawn.com/wps/wcm /connect/dawn-contentlibrary/dawn/the-newspaper/front-page/19-us-diktat-on-iranpipeline-not-to-beentertained-fo-140-hh-01 I RAN TO C OMPLETE P EACE P IPELINE Tehran is to start in early May the design and construction of the remaining par t of the Iran-Pakistan gas pipeline on Iranian soil, a gas official says. The He ad of the National Iranian Gas Export Company told Shana newswire on Sunday that a consultant would be chosen in the near future for the remaining part of the p ipeline, also known as the Peace Pipeline. We hope that the design of the pipe line will be completed before the current Iranian year ends on 21 March 2011, an d the construction of the pipeline will begin during the same Iranian year," he said. He stressed that Irans gas will be delivered to Pakistan by March 2014, n oting that only 250 km of the pipeline on Iranian side remains unconstructed. Ka saeizadeh said that Russian and Chinese firms have shown interest in constructin g the Pakistani part of the pipeline, noting that Islamabad has other options re garding its construction.

IranPakistan Peace Pipeline 37 A gas sales contract between Iran and Pakistan was signed last June by the presi dents of the two countries. Around 1,100 kilometers of the pipeline would be bui lt in Iran, while the remaining 1,000 kilometers would be installed in Pakistan. Kasaeizadeh said in January that according to normal procedures, Iran is suppos ed to deliver the gas to the Iran-Pakistan border, and then Pakistan would be re sponsible for conveying the export to any potential customer. Earlier, in Septem ber 2009, Kasaeizadeh mentioned that India also needs Irans gas and that Tehran has no problem in signing gas deals with New Delhi. India wants the delivery po int of its gas imports from Iran to be on the Pakistan-India border. The pipelin e was originally proposed in 1995, but last year, after almost 13 years of negot iations India decided to step back. Press TV, April 12, 2010, http://www.presstv.ir/detail.aspx?id=123086&sectionid= 351020103 P AKISTAN , I RAN S IGN M AJOR G AS P IPELINE P ACT The Iran-Pakistan (IP) gas pipeline sovereign guarantee agreement was signed on Friday [May 28, 2010]. The agreement was signed by National Iranian Oil Company Managing Director SR Kasaezadeh and Ministry of Petroleum and Natural Resources Joint Secretary Irshad Kaleemi. Talking to the media after the signing ceremony, Petroleum and Natural Resources Minister Naveed Qamar said that the groundwork of the Iran-Pakistan Gas Pipeline Project would start soon, as the paper work ha d been completed today (Friday). He said that the Gas Sale and Purchase Agreemen t (GSPA) between Pakistan and Iran was for the import of 750 million cubic feet daily (mmcfd) of natural gas with a provision to increase it to one billion cubi c feet per day (bcfd). The imported gas volume was nearly 20 percent of Pakistans current gas production and the supply was for a contracted period of 25 years, r enewable for another five years. All of the imported gas will be dedicated to th e power sector, the minister said. Shah said the imported gas volume would suppor t approximately 5,000 Megawatts (MW) of power generation and would result in

38 IPRI Factfile significant annual savings compared to alternative fuels such as High Sulphur Fu rnace Oil (HSFO), Liquefied Natural Gas (LNG), and Coal. As a part of the conditi ons precedent (CP) to be completed by parties to make the GSPA effective, the Pa kistan government was providing a performance guarantee on behalf of the Inter Sta te Gas Company. While all other CPs of the GSPA had been completed, the project was now ready to enter into its implementation phase. As per the current project implementation schedule, the first gas flow was targeted by the end of 2014, he added. The project will be funded through public-private partnership and the cap ital cost for the Pakistan section is estimated at $1.65 billion. The minister a dded that the construction of the pipeline would also create job opportunities, vocational training and health facilities in the backward areas of Balochistan a nd Sindh. While talking to Daily Times, Petroleum Secretary Kamran Lashari said that the usage of this gas would change the fuel mixture composition, which woul d result in a more affordable power tariff for electric power consumers. He adde d that under the second phase, the country would also import 250mmcft gas per da y for Balochistan. Lashari said it was time the bankable feasibility study was m ade and the route survey and front end engineering was conducted for laying the pipeline. While talking to the media, the National Iranian Oil Company Managing director said that this project would enhance the bilateral relations between bo th countries. Zeeshan Javaid, Daily Times (Lahore), May 29, 2010, http://www.dailytimes.com.pk /default.asp?page=2010\05\29\story_29-52010_pg7_12 P AK -I RAN G AS P IPELINE The Pakistan-Iran gas pipeline is moving ahead despite all the opposition to it. On Friday a sovereign guarantee for the pipeline was formally signed in Islamab ad, as well as the Gas Sale and Purchase Agreement between the two countries. Th is means that the pipeline, which will start in Asalooyeh in south Iran, will go ahead without India, which was originally scheduled to be the terminus of the p ipeline, and the main customer for the gas. However, it has backed out under Ame rican pressure, as well as

IranPakistan Peace Pipeline 39 blandishments, which include the so-called civilian nuclear deal it made with th e USA. The USA, to prevent the gas deal with Iran, has told Pakistan that it wil l look after its energy needs, but has done nothing practical. This has left Pak istan, facing a permanent energy shortfall, with no option but to pursue the Ira nian gas deal. With the project to start with a 900-km pipeline between Asalooye h and Iranshehr near the Pakistan border, it is scheduled for completion in four years, but the Iranians have assured Pakistani Petroleum Minister Syed Naveed Q amar that they will complete it in two and a half to three years, ahead of sched ule. However, even if the project comes online on schedule, it will still mean P akistans present electricity shortage will be considerably eased, as Iranian gas goes to fuel turbines that would otherwise need fuel. The Iranian gas would go t o the electricity sector, and thus local gas production would go for domestic us e. The Petroleum Ministry sees considerable savings resulting from this, when co mpared with other projects, and thus the project is viable as it is. However, th e project is still open to Indias joining, which would only require a pipeline to Pakistan, to connect India to the pipeline. Assuming India got permission from the USA, it would have to make a transit payment agreement with Pakistan, in add ition to an agreement with Iran on the price of the gas. It should be kept in mi nd, that while this project may well keep power projects operating, it does not add to the generation capacity of the country. For that, there is no substitute for large dams, such as the Kalabagh Dam project, which includes a large power g eneration capacity along with large water storage. It would be criminal neglect if Pakistan was to leave unexploited any of its hydro-electric capacity, and Ind ia, which has tried to sabotage the gas pipeline project, is already using this Pakistani neglect to claim excessive use along the Indus, in violation of the In dus Waters Treaty. In the process, Iran should also learn how unreliable India i s. Editorial, Nation (Islamabad), May 30, 2010, http://www.nation.com.pk/pakistan-n ews-newspaper-daily-englishonline/Opinions/Editorials/30-May-2010/PakIran-gas-pi peline

40 IPRI Factfile I RAN TO A PPROVE P AKISTAN G AS P IPELINE D EAL THIS W EEK Iran hopes to finalise a deal this week for a much-delayed pipeline to export na tural gas to Pakistan by 2015, an energy official said on Sunday. "The $7-billio n Iran-Pakistan gas pipeline contract will be finalised this week, and based on the approved time framework the export of gas to Pakistan will be launched by th e end of 2015," said Hojjatollah Qanimifard, deputy director in charge of invest ment at the National Iranian Oil Company. "In a meeting in Tehran on Tuesday (Ju ne 8), the final approval on pipeline by the NIOC board of directors will be del ivered to Pakistani officials and their letter of guarantee will be received," h e said in the comments on semi-official news agency ILNA. The project is crucial for Pakistan to avert a growing energy crisis already causing severe electricit y shortages in the country of about 170 million, at the same time as it confront s Islamist militancy. The pipeline will connect Irans giant South Fars gas fiel d with Pakistans southern Baluchistan and Sindh provinces. Iran has the worlds second-largest gas reserves after Russia. But sanctions by the West, political turmoil and construction delays have slowed its development as an exporter. Dubb ed the "peace pipeline," the project has been planned since the 1990s and origin ally would have extended from Pakistan to its old rival, India. However, India h as been reluctant to join the project given its longrunning distrust of Pakistan , with which it has fought three wars since they achieved independence in 1947. Under a deal signed in March, Pakistan will be allowed to charge a transit fee i f the proposed pipeline is eventually extended to India. The United States has t ried to discourage India and Pakistan from any deal with Iran because of Tehrans uranium enrichment activities and suspicions it wants to build nuclear weapons. Iran, whose economy has been hit by U.N. sanctions over the dispute, denies any such ambitions. Iranian media reported on Sunday that the oil minister had order ed an end to talks with Anglo-Dutch Shell (RDSa.L) and Spains Repsol (REP.MC) ove r the development of South Pars after the majors failed to meet ultimatums on th eir involvement.

IranPakistan Peace Pipeline 41 Iran has the worlds second largest gas reserves but has struggled for years to develop its oil and gas reserves. Iran says it already makes $18 billion annuall y from production at 10 phases of South Pars but that income could leap to at le ast $96 billion a year when all phases are completed. Chinas National Petroleum Corporation is developing part of it. The Islamic republic says it needs around $25 billion a year in oil and gas industry investment. Hossein Noghrekar Shiraz i, deputy oil minister in charge of international affairs, told Abrar daily on S unday Irans gas production capacity of 600 million cubic metres per day could r ise to 1.1 billion cubic metres by 2015. Reuters, June 6, 2010, http://www.reuters.com/article/idUSKAL63939220100606 I RAN -P AKISTAN G AS P IPELINE P ROJECT I NKED Pakistan and Iran on Sunday [June 13, 2010] finalized US $ 7.5 billion gas proje ct dubbed as a peace pipeline to start supply of natural gas to the former from 2014. The landmark agreement was signed by Irans deputy oil minister Javad Ouji and Pakistani delegation including among other officials Secretary Ministry of Petroleum and Natural Resources Kamran Lashari and Managing Director Inter-State Gas Company Naeem Sharafat in Tehran. "Now the project has entered into impleme ntation phase and there are no further formalities left in way" Naeem Sharafat s aid. He said the IP project was another testimony of the long historic and cordi al relations between Pakistan and Iran," the official said. The pipeline will co nnect Irans giant South Fars gas field with Pakistans Balochistan and Sindh pr ovinces. Pakistan has to construct about 700-km pipeline from the border, traver sing along the Makran Coastal Highway to connect with its existing gas transmiss ion network at Nawabshah. A 42-inch diameter pipeline is planned to be built, wh ich is estimated to cost US$ 1.65 billion. The project is crucial for Pakistan t o avert a growing energy crisis, already causing severe electricity shortages in the country and the project would help generate around 5,000 megawatts of elect ricity.

42 IPRI Factfile Under the gas sale and purchase agreement (GSPA), Pakistan will import about 750 million cubic feet a day (mmcfd) with a provision to increase it to one billion cubic feet a day (bcfd). The volume of imported gas will be about 20 per cent o f Pakistans current gas production and the agreement is for a period of 25 year s, renewable for another five years. Iran has the worlds second largest gas res erves after Russia but has struggled for years to develop its oil and gas resour ces. Sanctions by the West, political turmoil and construction delays have slowe d Irans development as an exporter. Iran state television said the pipeline was 1,000 km (620 miles) long, with about 907 km of it already built. Pakistan-Indi a (IPI) gas pipeline project was conceived in early nineties. However, the proje ct could not take off for various reasons, including the new gas discoveries in Pakistan of Miano, Sawan and Zamzama, Indian concerns on pipeline security and I ranian indecisiveness on certain issues. Pakistan would be allowed under an agre ement signed in March to charge a transit fee if the proposed pipeline is eventu ally extended to India. The project was revived and bilateral Iran-Pakistan Join t Working Group (JWG) was constituted and the first meeting was held on December 29-30, 2003 in Islamabad. News International (Rawalpindi), June 13, 2010, http://www.thenews.com.pk/update s.asp?id=106575 I RAN B EGINS W ORK ON G AS P IPELINE T ODAY Iran and Pakistan formally signed on Sunday [June 13, 2010] a $7.5 billion gas d eal, dubbed as a peace pipeline, for supply of natural gas to Pakistan from 2014 . Under the deal, Iran will export 21.5 million cubic meters (760 million cubic feet) per day of gas to Pakistan. The signing of the export deal marks a victory -of-sorts for Iran, which saw the UN Security Council last week pass its fourth round of sanctions against the Islamic Republic over its nuclear programme. This is a happy day, Irans Deputy Oil Minister Javad Ouji told reporters at the contrac t signing ceremony.

IranPakistan Peace Pipeline 43 After decades of negotiations, we are witnessing today the execution of the agree ment... to export more than 21 million cubic metres of natural gas daily from 20 14 to Pakistan, he added. Under the terms of the contract, Iran would be able to use Pakistani territory to transit gas to a third country, Mr Ouji said. He said that from Monday, Iran would start building a 300kilometre leg of the pipeline from Iranshahr to the Pakistani border, through the Iranian port of Chabahar. Ir an has already constructed 907 kilometres of the pipeline between Asalooyeh, in southern Iran, and Iranshahr, which will carry natural gas from Irans giant South Pars field. Kamran Lashari, secretary to the petroleum ministry, said that Isla mabad would conduct a one-year feasibility study for building its section of the pipeline. It will then take three years for constructing the 700-kilometre pipel ine from the Iranian border to Nawabshah, he added. Mr Ouji said that Iran curren tly produced 600 million cubic metres of natural gas, of which 430 to 440 millio n cubic metres was consumed domestically. Iran plans to raise output to 900 mill ion cubic metres over the next three years with the expansion of South Pars and hopes to further hike it to 1,100 million cubic metres by 2015. The project is c rucial for Pakistan to avert a growing energy crisis, already causing severe ele ctricity shortages. The project would help generate around 5,000 megawatts of el ectricity. The volume of imported gas will be about 20 per cent of Pakistans curr ent gas production and the agreement is for a period of 25 years, renewable for another five years. Irans Oil Minister Masoud Mirkazemi said that final approval of the gas export contract would lead to a calm environment for providing energy in the region. The pipeline project was initially expected to include India. Bu t New Delhi opted out of the deal, in part over security concerns and because of transit fees through Pakistan. Under a deal signed in March, Pakistan will be a llowed to charge a transit fee if the proposed pipeline is eventually extended t o India Earlier last week, Iran started work on a $1.58 billion pipeline which w ould bring gas to Turkey, with the aim of distribution to

44 IPRI Factfile Europe. Dawn (Islamabad), June 14, 2010, http://www.dawn.com/wps/wcm/connect/dawn-conten tlibrary/dawn/the-newspaper/front-page/iran-begins-work-on-gas-pipeline-today460 P AKISTAN S EALS P IPELINE D EAL WITH I RAN Iran has finalized a US$7 billion gas pipeline deal to export natural gas to Pak istan. The two countries on Sunday formally signed an export contract that commi ts the Islamic republic to supplying its eastern neighbor with natural gas from 2014. The Iran-Pakistan (IP) pipeline, which has been talked about for 17 years, will connect Irans South Pars gas field with Pakistans southern Balochistan a nd Sindh provinces and will be crucial in Pakistans attempts to ease countrywid e electricity shortages. The deal was signed days after a UN Security Council vo ted to tighten sanctions against Iran, but Islamabad believes that these will no t affect the pipeline project. As far as our ... project is concerned, it is a co mmercial agreement to meet our energy deficit and beyond the purview of this res olution, Dawn newspaper reported Abdul Basit, Foreign Office spokesman as saying. The United States has sought to dissuade Pakistan and India, which has also con sidered joining the project, because of Tehrans nuclear ambitions. We have advis ed Pakistan to seek other alternatives, Dawn quoted Robert Blake, the US Assistan t Secretary of State for South and Central Asian affairs as saying in April. We d o not think it is the right time for doing this kind of transaction (building th e pipeline) with Iran. Iran, which has the worlds second-largest gas reserves afte r Russia, needs around $25 billion a year in oil and gas industry investment, ac cording to Reuters. Its gas production capacity of 600 million cubic meters per day is expected to rise to 1.1 billion cubic meters by 2015, but sanctions by th e West, political turmoil and construction delays have slowed its development as an exporter. US Defense Secretary Robert Gates reportedly said before the UN sa nctions vote last week that the UN resolution could clear a way for individual s tates and the European Union to block foreign firms

IranPakistan Peace Pipeline 45 expanding Tehrans oil and gas exports and impose other curbs on business activity . The pipeline will provide gas to the power sector to generate about 5,000 mega watts of electricity. Some analysts say it will not be possible for the governme nt to provide the fuel to domestic consumers due to its high price, which was on e reason behind Indias withdrawal from the project. Pakistans Deputy Energy Mini ster Kamran Lashari, who was present at the signing ceremony, said Islamabad wil l conduct a one-year feasibility study for building its section of the pipeline, local media reported. Iran has built 907 kilometers of the pipeline between Asa looyeh, in southern Iran, and Iranshahr. Irans Deputy Oil Minister Javad Ouji rep ortedly said that Iran this week will start building the next 300km stretch to t he Pakistani border, through the Iranian port of Chabahar. Pakistan will take th ree years to build the 700km link from the Iranian border to Nawabshah, in Sindh province. This is a happy day, Ouji said at the contract signing ceremony in Tehr an, Agence France-Press reported. After decades of negotiations, we are witnessin g today the execution of the agreement ... to export more than 21 million cubic meters of natural gas daily from 2014 to Pakistan. On May 28, the two countries s igned the sovereign guarantee agreement, which makes effective made Gas Sales Pu rchase Agreement (GSPA) signed by the countries last year in Istanbul. Under the GSPA, Iran agreed to export 750 million cubic feet per day (mmcfd) with a provi sion to increase it to one billion cubic feet a day (bcfd) at the rate equal to 78% of crude oil for the next 25 years. The pipeline was originally planned to e xtend from Pakistan to India in 1993. India walked away from the project last ye ar, but has kept its options open to join at a later stage. After Indias withdr awal, Beijing has shown interest in building a pipeline through Pakistan carryin g Iranian gas to China. Chinas National Petroleum Corporation is already involv ed in developing the South Pars field. Pakistans demand for gas, which is the p rimary fuel helping run the economy, has surged to 4.7 billion cubic feet a day (bcfd) against actual supply of 3.6 bcfd. The countrys natural gas reserves, wh ich meet over 50% of its requirement for energy, have depleted rapidly in recent years with few hydrocarbon discoveries and decline in production from

46 IPRI Factfile its largest Sui gas field in Balochistan. Syed Fazl-e-Haider, Asia Times (Hong Kong), June 15, 2010, http://www.atimes.com /atimes/South_Asia/LF15Df02.html I RAN , P AKISTAN G AS D EAL B OOSTS I RAN This week, Iran signed a major long-term gas export contract with Pakistan and p ortrayed itself as a reliable supplier for its gas-hungry neighbors in an appare nt response to Washingtons intense diplomatic efforts to isolate it over its uran ium-enrichment program. Despite the boasting though, the Islamic Republics abilit y to become a significant gas exporter will be increasingly constrained by the n ew set of sanctions. Under the $7.5 billion contract, Iran, with the worlds secon dlargest gas reserves (Russias reserves are larger), will sell Pakistan 750 milli on cubic feet per day for 25 years starting in 2014, once the Pakistani portion of the pipeline is completed. The volume can be increased to 1 bcf/d and the con tract can be extended for five additional years. Tehran has been offering its ne ighbors gas for years, from Turkey, Europe and its Arab neighbors in the Persian Gulf, to China as liquefied natural gas, but differences over pricing, concerns over Irans ability to meet demand, as well as Washingtons pressure over the past years, have derailed deals one after another. The timing of the signing of the l ong-awaited contract with Pakistan, only weeks after the UN Security Council agr eed to a fourth set of sanctions, is significant. Pakistan has brushed away crit icism over the deal, while Iranian officials have used it to depict the country as immune to the new measures. Iran will play a big role in meeting of the energy security of the region, Oil Minister Masoud Mirkazemi was quoted: Pakistan is an old project. One of the reasons to reemphasize now is to create the impression t hey are not isolated and projects are going ahead as planned, said Jonathan Stern , director of gas research of the Oxford Institute for Energy Studies. The crucia l thing now is what impact the international sanctions have on Irans ability to r aise money, Stern said. It doesnt look confidence inspiring. Iran current exports ga s to Turkey, but it imports more from Turkmenistan and Azerbaijan to supply its disconnect northern region, a trend that will continue at least for this year. I ts gas production in 2009 reached 12.7 bcf/d, a 13% increase from the year befor e. But all of that

IranPakistan Peace Pipeline 47 went to meet local demand, which increased in the same period almost 11%, accord ing to the 2010 BP Statistical Review. The pipeline to Pakistan, which was origi nally designed to reach India, was dubbed the Peace Pipeline, and involved build ing a 1,725-mile duct from Irans huge South Pars gas field, across Pakistan and i nto northern India, with both countries splitting 2.12 bcf/d. India, which was c oncerned about the pipelines security in the territory of its longtime foe, withd rew after signing a nuclear deal with the US. Right up to the end, the Obama adm inistration also offered Islamabad alternatives to Iranian gas imports, includin g help in building a re-gasification terminal to buy liquefied natural gas. But Pakistans soaring gas demand and power shortages weighed more. Officials there sa y the Iranian gas will power up to 5,000 megawatts of electricity generation cap acity. Only about 185 miles of the 745-mile gas pipeline in Iranian territory re main to be built. Additional production from South Pars which is already in adva nced stages of development should allow the Iranians to meet the Pakistani deman d. But the commitment, along with uncertainty over whether Iran will be able to decrease domestic demand, make any other major export commitments unlikely in th e short term, especially as sanctions limit the ability to finance the remaining projects as Western powers target Iranian banks. Iranian banks are resorting to issuing euro bonds worth about $1.2 billion to jumpstart upstream projects. In t heory, its feasible to do. But with politics its hard to tell, said Manouchehr Taki n, senior upstream analyst of the Centre for Global Energy Studies. Iran has had difficulty buying and paying in international markets. The US has gone out of it s way to twist the arms of oil companies. South Pars has some 450 tcf of gas rese rves and currently produces around 7 bcf/d. Iran plans to develop the field in a t least 24 phases to eventually reach around 30 bcf/d, or 81 percent of total pr oduction by the end of the countrys five-year master plan ending 2015. Meanwhile, officials expect local demand to drop 30% in the same period as a result of a s ubsidy reform plan already under way. But few analysts believe Iran, which is no torious for making empty promises in its energy sector, will be able to meet the production target, especially as financing becomes increasingly hard. History is littered with Iranian contracts and

48 IPRI Factfile deals to supply gas and most has not happened. The ones that have ultimately hav ent been a great success, Stern said. Western companies have all but frozen their operations as international pressure has mounted over Irans nuclear plans. Asian companies have picked up much of the work, but analysts doubt foreign companies will be willing to sink more money into Iran. Chinese and Indians are there, but if you look at whole picture has been another reason of development of South Par s especially has been delayed, Takin said. Indeed, Irans Oil Ministry this week si gned the six remaining phases of South Pars with Iranian companies, illustrating the difficulty of attracting more foreign expertise. Additionally, there are te chnological barriers, especially in regards to building the LNG facilities. In te rms of gas volume, its capable of producing required volume to export. Its more a case of when these projects are developed. In my view, implementation will not h appen in the five years, said Colin Lothian, Middle East upstream analyst with Wo od Mackenzie, an energy consultancy. Andres Cala, Energy Tribune (Houston), June 16, 2010, http://www.energytribune.c om/articles.cfm/4367/Iran-Pakistan-Gas-DealBoosts-Iran US S AYS N EW S ANCTIONS ON I RAN P AKISTAN COULD I MPACT Pakistan should be wary of committing to an Iran-Pakistan natural gas pipeline b ecause anticipated US sanctions on Iran could hit Pakistani companies, the US sp ecial representative to the region said on Sunday. While sympathetic to Pakistans energy needs, the US special representative to the region, Richard Holbrooke, t old reporters that new legislation, which targets Irans energy sector, is being d rafted in the US Congress and that Pakistan should wait and see. Pakistan has an ob vious, major energy problem and we are sympathetic to that, but in regards to a specific project, legislation is being prepared that may apply to the project, he said, referring to the pipeline. We caution the Pakistanis not to over-commit th emselves until we know the legislation.

IranPakistan Peace Pipeline 49 Pakistan is plagued by chronic electricity shortages that have led to mass demon strations and battered the politically shaky government of President Asif Ali Za rdari. US Senator Joseph Lieberman said last week he expects Congress to finish shortly legislation tightening US sanctions on Iran that will include provisions affecting the supply of refined petroleum products to Tehran, and add to sancti ons on its financial sector. Lieberman, an independent, is a member of a House-S enate committee of negotiators working on final details of the bill and said it could pass by July 4. The $7.6 billion natural gas pipeline deal, signed in Marc h, doesnt directly deal with refined petroleum products and was hailed in both Iran and Pakistan as highly beneficial. The US has so far been muted in its crit icism of the deal, balancing its need to support Pakistan, a vital but unstable ally in the global war against al Qaeda, with its desire to isolate Iran. But th e legislation could be comprehensive enough to have major implications for Pakis tani companies, Holbrooke said. We caution Pakistan to wait and see what the legi slation is. News International (Rawalpindi), June 20, 2010, http://www.thenews.com.pk/update s.asp?id=107017 P AKISTAN FM V OWS TO I MPLEMENT I RAN G AS P IPELINE P ROJECT D ESPITE US W ARN ING Pakistans Foreign Minister Shah Mehmood Qureshi Sunday defended the 7.5 billion-U S dollar gas pipeline with Iran and said Islamabad will take the project forward despite sanctions on Iran. Qureshis comments came hours after US Special envoy for Pakistan and Afghanistan Richard Holbrooke warned Pakistan against the pipe line intended to bring the much-needed natural gas to the energy starved country . Pakistan and Iran formally signed the deal in Tehran on June 13, under which I ran will supply Pakistan with natural gas from mid- 2014. The gas pipeline projec t with Iran is in Pakistans interests, the Pakistani Foreign Minister told a new s conference in the city of Multan in Punjab.

50 IPRI Factfile Qureshi said that Pakistani experts are of the opinion that sanctions on Iran wi ll not affect gas pipeline project as it is a bilateral agreement and both count ries have already finalized the deal. He said that gas pipeline deal with Iran w ill not violate international laws, adding Pakistan will focus on its interests without violating international laws. The Pakistani Foreign Minister said that t he visiting U.S envoy Richard Holbrooke also remained silent when he was asked a bout the Iran gas pipeline deal on Saturday. He said sanctions on Iran have not been imposed for the first time and that the Islamic republic had also been slap ped with curbs three times before. He added that it is fourth time that Iran has been sanctioned, adding that if these sanctions have been imposed under chapter 7 of the UN then all UN members will apply and Pakistan will respect it like ot her countries. The pipeline was initially mooted to carry gas from Iran to Pakis tan and on to India. India withdrew from negotiations last year after signing a nuclear deal with the United States, but has kept open the option of rejoining t he project at a later stage. Iran will export more than 21 million cubic metres (742 million cubic feet) of natural gas daily, according to the deal. Meanwhile Iranian ambassador in Islamabad Mash Allah Shakeri has said the multi-billion I ran gas pipeline has enhanced Pakistans strategic importance, particularly in r elation to India. In addition to the added economic value of billions of dollars, the Iran gas pipeline agreement has boosted the strategic value of Pakistan in the region. If there is any third country recipient, they have to recognize that Pakistan is going to provide a peaceful passage, Shakeri told Express Television in an interview. Mu Xuequan, English News (Beijing), June 20, 2010, http://news.xinhuanet.com/eng lish2010/world/2010-06/20/c_13359663.htm W ILL THE R EAL M R . R EIGNS OVER H OLBROOKE S TAND U P : C ONFUSION US S TANCE ON G AS P IPELINE It was quite surprising to hear Mr Holbrooke tell the journalists at Islamabad o n Saturday that the US had no objection to Pakistan getting natural gas from Ira n since it was facing an acute energy crisis. The surprise news a pleasant surpr ise for the load-shedding-beaten people

IranPakistan Peace Pipeline 51 here however, called for serious thinking about what could possibly have induced Washington to drop its opposition to the IranPakistan-India gas pipeline projec t. After all, neither the fact of the power shortage, that has been crippling th e whole gamut of our life for nearly three years, was hidden from it nor has the reason of its opposition to the pipeline project vanished. Islamabad has been u nder intense pressure not to go ahead with it, and at the same time was repeated ly rebuffed when it tried to secure a nuclear deal on the pattern of that which was concluded with India. The US only recently managed to have stiffer sanctions passed by the UN Security Council against Tehran for its imagined drive to deve lop nuclear weapons. Logically, its pressure should have intensified! But, as mo st political analyst suspected, there was something more than meets the eye and th e surprise did not last long, leaving a bad taste in the mouth; the very next da y Mr Holbrooke recanted the earlier statement, saying, We cautioned the Pakistani s not to over-commit themselves until we know the legislation (that was under pr eparation in the US and that it could be comprehensive). One really wonders what prevented him earlier to withhold that information and misinform the media by st ating that the US had no objection against the gas pipeline project. He could al so have put the questioner in the picture about this comprehensive legislation bei ng drafted. His expression of sympathy for Pakistan, therefore, sounds utterly h ollow. He said, Pakistan has an obvious major energy problem. We are very sympath etic to it. Foreign Minister Qureshi rightly and quickly rejected the US concern, while talking to the media at Multan airport. He maintained that the UN sanctio ns that Islamabad respected would not harm the deal. The US must understand that the pipeline could serve as the lifeline for the country and save it from the d arkening prospects of economic ruin and social chaos. Pakistan must stick to the stand taken by Mr Qureshi. The US should be told in unmistakable terms that Pak istan would go ahead with the project under all circumstances and pull out of th e war on terror if the US does not withdraw its objection, something it should h ave done long ago, if it had made the mistake of joining up with the ungrateful US. The war has cost us dearly not only in terms of the loss of life and propert y but also causing all-pervasive insecurity. The US must give up its present pol icy of taking illogical stands; otherwise, it would do

52 IPRI Factfile its interests irreparable harm. Dawn (Islamabad), June 21, 2010, http://thedawn.com.pk/2010/06/21/will-the-realmr-holbrooke-stand-upconfusion-reigns-us-stance-on-gas-pipeline/ US B LOWS H OT , B LOWS C OLD O VER P AK -I RAN G AS P IPELINE The US is apparently using the Pak-Iran gas pipeline deal also as leverage again st both Pakistan and Iran and part of its carrot and stick policy. Mr. Holbrooke , President Obamas special envoy to the region, who is currently visiting Islamab ad, told journalists on Saturday that the US had no objection to Pakistan gettin g natural gas from Iran since it was facing an acute energy crisis. The observat ion was received with mixed feelings since the energy-starved people of Pakistans predicament has been no secret nor has this affliction struck Pakistanis sudden ly; then how come the US, which has been indicating its disapproval of the deal and has even managed to convince its new paramour in the region, India to renege on the deal, now express no objection. Indeed a number of Pakistanis were relieve d at the US tacit approval of the deal, but the thinking ones and those with a p enchant for the conspiracy theory were wondering what could possibly have induce d Washington to drop its opposition to the Iran-Pakistan-India gas pipeline proj ect. After all, neither the fact of the power shortage, that has been crippling the whole gamut of our life for nearly three years, was hidden from it nor has t he reason of its opposition to the pipeline project vanished. The Daily Mail sti ll remembers the intense arm twisting and wrangling on the part of USA over the deal and in return, the snubs it received from the US, whenever Pakistan raised the question of a civil nuclear energy deal like the 123 deal between US and Ind ia. Pakistans requests were rebuffed by USA, sometimes by raising the spectre of Dr. Abdul Qadeer Khans network and others by flogging the dead horse of nuclear p roliferation. However, the pleasure and satisfaction of the sanguine group in Pa kistan was short lived as the very next day, Sunday, Richard Holbrooke flip-flop ped and reminded Pakistan that Iran was under sanctions and this could affect th e Pak-Iran gas pipeline deal. The Daily Mail is wondering what changed overnight for Mr. Holbrooke to recant his earlier statement. Did he receive fresh advice fr om Washington or did sweetheart New Delhi whisper sweet nothings in Mr. Holbrook es

IranPakistan Peace Pipeline 53 ear for pressurizing Pakistan. Pakistanis too are an emotional bunch. In one mom ent they are at the top of the world that US has no objections and the next their hopes are dashed by Mr. Holbrooke that We cautioned the Pakistanis not to over-co mmit themselves until we know the legislation (that was under preparation in the US and that it could be comprehensive). The Daily Mail believes that pragmatism should have prevailed because the sanctions against Iran were imposed prior to M r. Holbrookes visit and if anything, the sanctions would have intensified the pre ssure on both Pakistan and Iran. Richard Holbrooke of course is a suave diplomat and does not get stabbed by pangs of conscience that one day he raises the hope s of Pakistanis and the next he dashes them. He does it ever so deftly that both Machiavelli and Chanakya would have been proud of their able disciple. The Dail y Mail is appreciative of Pakistans foreign office spokesmans statement that the UN resolution does not stop Pakistan from carrying on with the gas pipeline projec t because both China and Russia ensured that Irans energy sector, including gas a nd oil, is not targeted when UN resolution 1929 was passed by the UNSC. The scop e of the resolution is limited. Spokesman Abdul Basit also was being diplomatic, while setting aside Holbrooks twisting remarks said that the gas deal would not b e affected and Pakistan would go ahead with the deal to meet its energy needs si nce the oil and gas sectors were not a part of UN sanction over Iran. However, h e said that the sanctions imposed on Iran were imposed by the Security Council, and that Pakistan would respect the sanctions. Of course the Pak-Iran gas pipeli ne project has become a new whip in the hands of the US to lash both Iran and Pa kistan if the need arises. Iran, which has so far borne all pressures gracefully may not be affected, but it is Pakistan that has to show spine. Editorial, Daily Mail (Islamabad), June 22, 2010, http://dailymailnews.com/0610/ 22/Editorial_Column/DMEditorial.php#1 P AKISTAN NOT B OUND BY US S ANCTIONS A GAINST I RAN : G ILANI Pakistan will go ahead with a plan to import natural gas from Iran even if the U S levies additional sanctions on the country, Prime Minister Yousuf Raza Gilani said.

54 IPRI Factfile Gilanis comments Tuesday come two days after the US special envoy to Pakistan, Richard Holbrooke, cautioned Pakistan not to over commit itself to the deal because it could run afoul of new sanctions against Iran. The deal has been a co nstant source of tension between the two countries, with Pakistan arguing that i t is vital to its ability to cope with an energy crisis and the US stressing tha t it would undercut international pressure on Iran over its nuclear program. Gil ani said Pakistan would reconsider the deal if it violated UN sanctions, but the country was not bound to follow unilateral US measures. He said media repor ts that quoted him as saying that Pakistan would heed Holbrookes warning were i ncorrect. The UN has levied four sets of sanctions against Iran for failing to s uspend uranium enrichment, a process that can produce fuel for a nuclear weapon. The latest set of UN sanctions was approved earlier this month. The US has also applied a number of unilateral sanctions against Iran, and Congress is currentl y finalising a new set largely aimed at the countrys petroleum industry. Both h ouses have passed versions of the sanctions and are working to reconcile their d ifferences. Pakistan and Iran finalised the gas deal earlier this month. Under t he contract, Iran will export 760 million cubic feet of gas per day to Pakistan through a new pipeline beginning in 2014. The construction of the pipeline is es timated to cost some $7 billion. While US officials have expressed opposition to the Pakistan-Iran gas pipeline deal, the issue is complicated by Washingtons r eliance on Pakistans cooperation to fight al-Qaeda and the Taliban. The US also acknowledges that Pakistan faces a severe energy crisis and has made aid to the energy sector one of its top development priorities. Electricity shortages in P akistan cause rolling blackouts that affect businesses and intensify suffering d uring the hot summer months. Dawn (Islamabad), June 22, 2010, http://www.dawn.com/wps/wcm/connect/dawn-conten tlibrary/dawn/news/pakistan/04-gilani-iran-deal-us-sanctions-qs-12 IP P IPELINE The prime minister is supposed to dispel confusion, not create it. But for a 24hour period between Sunday and Monday, Prime Minister Gilani

IranPakistan Peace Pipeline 55 caused many to scratch their heads after media reports attributed to him a pledg e to abide by US sanctions against Iran, in contradiction of Pakistans traditiona l stance of adhering to only UN-imposed sanctions. Yesterday Mr Gilani rejected the media reports and reiterated Pakistans stance of adhering to only UN-imposed sanctions, but what it has done is to bring into focus the difficult triangle of US-Pakistan-Iran relations. At this point, it would be helpful to revisit the e conomic and technical basics of the Iran-Pakistan pipeline and the first princip les of geopolitics. Pakistan is a country on the brink of an energy crisis: the resources that we are currently able to tap may not last another decade. There a re local options, the new ones such as figuring out how to tap the potential of Th ar coal and Kohat gas and building more dams, and old ones such as extracting more from wells that have been capped. The problem is there is no direction from the government on energy planning. Even if there was such planning, at this late st age stopgap measures would be needed to plug the energy deficit. Enter options s uch as the Iran-Pakistan pipeline. The cost and technical details are massively complex, but some of the conventional wisdom is questionable. For example, will it really cost in the range of $7bn for Pakistan to build its share of the pipelin e? That is a critical question because Pakistan is unlikely to get any foreign f inancing for the pipeline from the IFIs or cheap credit from international credi t markets. Also, is the purchase price agreed unjustifiably high or should Pakis tan view the agreement from the prism of current options, and the cost of not do ing anything on the energy front? Getting answers to these questions is where Mr Gilanis energies should be directed, rather that speculating about sanctions. Am erican disapproval for the pipeline is clear and the US will continue to flex it s diplomatic muscle, but thus far it has avoided presenting Pakistan with a fait accompli. Potential American sanctions against Iran have not been linked to Ker ry-Lugar aid nor do they specifically bar projects such as the IP pipeline. And if the American side does try and squeeze Pakistan diplomatically, Pakistans resp onse should be: how exactly will an energy crisis here help the fight against mi litancy? Editorial, Dawn (Islamabad), June 23, 2010, http://www.dawn.com/wps/wcm/connect/ dawn-content-library/dawn/thenewspaper/editorial/21-ip-pipeline-360-sk-01

56 IPRI Factfile Y IELDING TO P RESSURE One day US representative Richard Holbrooke makes a public statement before the media that his country has no objection to the Iranian gas pipeline project; the very next day, he backtracks, very likely on being upbraided by Washington, and qualifies it with the remark that the US was drafting a legislation against Ira n, which might jeopardise it. Then, while at Multan, Foreign Minister Shah Mahmo od Qureshi sharply reacts by saying, we have to look after our interests. He was c onfident that the project did not come under the purview of the UN sanctions tha t, in any case, Pakistan would follow, giving the clear impression that it has t aken the decision to go ahead, whatever the American law might say. The nation, not only seething with anger at the governments obsequious attitude to the US but also under stress for a long list of worries and desperately wanting to get rid of the agony of load-shedding, was elated at this posture, which reflected the need to serve the national interest and befitted the behaviour of a sovereign st ate. Sadly, however, that feeling was not to last long. Soon afterwards, the off icial view took a sharp turn, and a tame acceptance of the US pressure became ev ident. All that talk of fiercely preserving our national interest and sovereign right in the conduct of relations with any country and the nations euphoria that at last Pakistan was coming into its own, abruptly ended as Prime Minister Yousu f Raza Gilani told newsmen at Garhi Khuda Bux that Pakistan would abide by the A merican sanctions i.e. as stipulated in the legislation on the anvil in the US. Blatantly denying the stark reality that has, of late, become characteristic of Prime Ministers utterances, he maintained we will not act under anyones dictation. T he gas pipeline from Iran is a test case of the governments attitude towards its core interests, and, at the same time, of Washingtons repeated commitment of abid ing friendship with Pakistan. Refusal to help solve the Kashmir dispute; going o ut of the way to favour India with a nuclear deal while denying a Non-NATO ally wi th the same privilege; coalescing with India to create trouble for Pakistan in F ATA and Balochistan; baselessly accusing Pakistan of soft-pedalling on terrorist s; pressurising it to give up the idea of receiving the natural gas from Iran; a nd, at the same time, creating hurdles to the Pak-China peaceful nuclear underst anding - these American gestures should have convinced our present rulers that P akistan is being systematically reduced to a client

IranPakistan Peace Pipeline 57 state. We need to redirect our compass to know from where genuine friendship and understanding beckons. We have made thoughtless sacrifices to curry favour with a phoney friend; it is time to make a move towards genuine friends, with Beijin g heading the list that also includes several Muslim and other states. Editorial, Nation (Islamabad), June 23, 2010, http://www.nation.com.pk/pakistannews-newspaper-daily-englishonline/Opinions/Editorials/23-Jun-2010/Yielding-to-p ressure P AKISTAN AND I RAN R EITERATE C OMMITMENT TO I RAN -P AKISTAN P OWER P ROJECTS E XECUTE Pakistan and Iran on Wednesday reiterated their commitment to execute the Iran-P akistan (IP) gas pipeline and power trade projects with the remarks that both pr ojects are in the best interests of both brotherly countries. Pakistan is repeat ing its stance that it will not back out from the gas pipeline project despite p ressure from Washington, which is engaged in strategic dialogue with Islamabad. Official sources confirmed that Iranian Ambassador to Pakistan, Mashallah Shaker i, and Minister for Water and Power, Pervaiz Ashraf, discussed progress on the t wo projects at a meeting in the Parliament House. The issues pertaining to impor t of 1000 MW power from Iran to Pakistan and enhancement in power from 35 MW to 100 MW for Gwadar came under discussion during the meeting. According to sources , some issues are unresolved so far with regard to import of 1000 MW electricity . The Minister for Water and Power, along with a team, will visit Tehran in Augu st to resolve the issues with the Iranian leadership. After the visit of Pervaiz Ashraf, an official delegation, comprising technical experts, will reach Tehran to discuss the technical aspects of the project, including tariff and cost. Thi s would be reciprocated by the Iranian side. National Engineering Pakistan (Nesp ak) has already finalised feasibility study report of the project, whereas Iran is yet to complete its work. The Iranian Ambassador briefed the Minister on the recent developments on import of power project and informed him about the curren t status of transmission line from Iran to Gwadar. Both the Minister and the Amb assador agreed to further expedite the project. They also agreed that delegation of technical experts from both sides would visit each others country. The Amba ssador stated that Iran is

58 IPRI Factfile also keen to establish Iran-Pakistan-Turkey rail link. The proposed rail project will further boost bilateral relations with Iran. The Minister replied that Pak istan would fully support the project, as it would enhance regional co-operation . Mushtaq Ghumman, Business Recorder, June 24, 2010, http://brecorder.com/index.ph p?id=1073069&currPageNo=1&query= &search=&term=&supDate= UK SAYS I RAN G AS P IPELINE P AKISTAN S I NTERNAL M ATTER Iran continued to dominate the political and diplomatic scene on Wednesday as Pa kistan cautioned British Foreign Secretary William Hague that sanctions against the Gulf country beyond the ones mandated by the United Nations could have serio us repercussions for Afghanistan and the Middle East. The warning, Dawn has lear nt, was conveyed by Pakistani diplomats during their talks with Mr Hague, who is in Pakistan on his first visit as foreign secretary. According to Foreign Offic e sources, a significant part of the talks focussed on the latest UN sanctions o n Iran and the subsequent efforts by the US and EU to take punitive measures aga inst Tehrans oil and gas sector. Pakistan had on June 14 finalised a $7.6 billion gas pipeline deal with Iran, which is considered crucial for averting the energ y crisis Pakistan is currently confronting. Mr Hague was told that the US and EU sanctions could prove counter-productive and may force Iran to react, a senior fo reign ministry official informed Dawn. Pakistan fears that a cornered Iran could affect the situation in Middle East and the peace and reconciliation efforts in Afghanistan. According to the official, Mr Hague patiently listened to the Paki stani point of view. Iran also figured at the press conference which followed th e talks, though the guarded remarks of the British foreign secretary did not ind icate that he had been won over by the persuasions of the Pakistan officials. At the media briefing, which Mr Hague addressed with his Pakistani counterpart Sha h Mehmood Qureshi, he reiterated that Britain

IranPakistan Peace Pipeline 59 supported the additional measures within the EU to increase peaceful and legitima te pressure on Iran over its nuclear programme. His words merely offered the reas surance that Britain would not support use of force against Iran, in case anyone in the audience feared another military adventure by the West. The only consola tion that Mr Hague was willing to offer was to reiterate what US Special Represe ntative for Pakistan and Afghanistan Richard Holbrooke had said days earlier tha t the pipeline was Islamabads internal matter. Mr Hague, too, clarified that his country would not interfere in the sovereign decision of Pakistan (on the gas pip eline project). Diplomacy dominated the mood during the press conference as Mr Qu reshi also weighed his words carefully while speaking on the issue. According to him, the Iran-Pakistan pipeline was one of the options (for addressing the coun trys energy crisis) that was doable and made perfect economic sense, though he adde d that Pakistan, being a responsible country, would fulfil its international obl igations. Mr Hague also met PML-N chief Mian Nawaz Sharif. Baqir Sajjad Syed Dawn (Islamab ad), June 24, 2010, http://www.dawn.com/wps/wcm/connect/dawn-contentlibrary/dawn /news/pakistan/04-qureshi-hague-bilateral-ties-qs-13 I RAN -P AK G AS P IPELINE TO S TRENGTHEN R ELATIONS The Iran-Pakistan gas pipeline project will bring industrial revolution in both the countries, said Iranian Ambassador to Pakistan Mashallah Shakri on Saturday. I think this mega project will be helpful and beneficial for both the neighbouri ng countries, he said. Mashallah Shakri said Iran would provide 21 million cubic meter gas, which will be enough to meet the energy needs of Pakistan. We know Pak istan is facing energy crisis and this project would facilitate the country to o vercome the issue, he added. He said that the project would also create a peacefu l atmosphere in the region and also promote people to people contact, social con tract, tourism and economy of both the nations, he maintained. Shakri said Iran and Pakistan enjoy good relations and Iran is the first country, which internati onally recognized Pakistan since its formation and Pakistan is also the first co untry that supported Iranian

60 IPRI Factfile revolution. Daily Times (Lahore), June 27, 2010, http://www.dailytimes.com.pk/default.asp?pa ge=2010\06\27\story_27-62010_pg5_6 P IPELINE TO T RANSFORM P AKISTAN INTO A SIAN T IGER Peace pipeline has potential to transform Pakistan into an Asian Tiger. It can h elp resolve water dispute with India, said The Pakistan Economy Watch (PEW) on S unday. Iran-Pakistan gas pipeline will not boost Iran economy and influence to a level that is unaccepted by US. Tehran will never emerge as a monopolistic supp lier; it is not a wildcard in hands of Ahmadinejad. Americans are opposing the p roject as they have perceived the project as a threat to their monopoly in the r egion but have failed to offer any alternative, said Dr. Murtaza Mughal, Preside nt PEW. Washington needs to understand that benefits of a cooperative strategy a re always better than the dividends of a non-cooperative strategy. Persistent op position can supplement anti-American feelings among Pakistanis, he added. IPI c an boost our relations with China and may help resolve water issue with India as New Delhi may not be able to ignore this source of energy for long. A gas-for-w ater deal can emerge as a believable confidence building measure. We need this ga s, as our economy is under stress and it cannot absorb the shocks of wide swings in energy prices having serious repercussions, said Dr. Murtaza Mughal. Pakistan has limited ability to develop indigenous resources in the short run without co mpromising other critically important sectors. Our policymakers have not develop ed resources that can keep pace with economic expansion resulting in great energ y demand-supply gap which Iran gas can help subside. For Pakistan, it is an econ omic issue but US view it as a political issue that has delayed the project sinc e 1990 when the worlds second largest producer proposed sale of part of 974 trill ion cubic feet gas. US should stop efforts to deprive Pakistanis of their legiti mate right, said Dr. Mughal. Pakistan Economy Watch (Islamabad), June 28, 2010, http://pakistaneconomywatch.c om/?p=247#more-247

IranPakistan Peace Pipeline 61 P AKISTAN -I RAN P IPELINE Pakistan will construct about 780-km, 42 diameter pipeline from the border, trave rsing along the Makran Coastal Highway to connect with its existing gas transmis sion network at Nawabshah, said Naim Sharafat, MD, Interstate Gas Systems (Pvt) Ltd (ISGS) here on Wednesday. Briefing the Senate Standing Committee for Petrole um and Natural Resources about the status of the Iran-Pakistan Pipeline project, he said almost 665-km of the pipeline will pass through Balochistan while about 115-km of the pipeline will be laid in the Sindh province, he said. This was th e first Senate Committee meeting held at SSGC since Iran and Pakistan inked the historic agreement in Tehran in June 2010 for the supply of natural gas to Pakis tan from 2015. The meeting was chaired by Sabir Ali Baloch, the Standing Committ ee Chairman. Naim Sharafat, MD, ISGS who was accompanied by his CFO Mobin Saulat dilated on the salient features of the 1,150 km pipeline, which will connect Ir ans South Pars gas field with Balochistan and Sindh provinces. The estimated cost of Pakistan segment is $1.2 billion to be incurred over a 4-year period, Mr. Sh arafat added. He further explained the project is planned to be funded at a debt equity ratio of 70:30 requiring an equity investment of $373 million and debt fi nancing of $872 million. Mr Sharafat said the projects debt portion is expected t o be secured from a combination of domestic and international financiers includi ng Sindh and Balochistan governments, SSGC, SNGPL, OGDCL, PPL, PARCO and NBP (wh ose contribution will be $190 million or 51% of equity structure) as well as pot ential private investors including Petronas and Gazprom (whose contribution will be $183 million or 49% of the equity structure). MD, ISGS stated that under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 mmcfd gas with a provision to increase it to one billion cubic feet a day (bcfd). The senators suggested that the stakeholders in the routes traversing the pipeline must be t aken into confidence, majority of which are remote and less developed areas, wit h clear-cut assurances for the provision of new schools, hospitals and vocationa l training centres. In response to the senators queries, MD, ISGS said that being one of the largest infrastructure projects the country has ever seen, the IP pr oject will create

62 IPRI Factfile new job opportunities in the provinces of Balochistan and Sindh, thus improving the income level and the standard of living of its citizens. In response to the senators apprehensions, Mr. Sharafat stated that Iran-Pakistan Projects GSPA was b road enough to allow force majeure relief in the event the project is hampered d ue to UN sanctions on Iran. MD, ISGS said that in case the project does not mate rialize, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to th e system. Explaining the current status of the project, MD, ISGS said that a det ailed route survey was in progress to pave way for the engineering and design of the pipeline facilities. staff report Daily Times (Lahore), July 8, 2010, http://www.dailytimes.com.pk/default.asp?pag e=2010\07\08\story_8-72010_pg5_15 P AK P ORTION OF I RAN G AS P IPELINE TO C OST $1.2 B N The Pakistani segment of the gas pipeline from Iran will cost $1.2 billion and w ork will be completed in four years, an official said. Managing Director Interst ate Gas Systems, Naim Sharafat, said the project is planned to be funded through a debt-equity ratio of 70:30, requiring debt financing of $872 million and equi ty investment of $373 million. The Interstate Gas Systems is a joint venture of Sui Southern Gas Company and Sui Northern Gas Pipelines. He was giving a present ation to the Senate standing committee for Petroleum and Natural Resources on th e status of Iran-Pakistan gas pipeline project at the Sui Southern Gas Company ( SSGC). This was the first Senate committee meeting at the SSGC since Iran and Pa kistan inked the historic agreement in Tehran in June for the supply of natural gas from 2015. Chairman Standing Committee Sabir Ali Baloch chaired the meeting, which discussed salient features of the 1,150-kilometre pipeline that will conn ect Irans South Pars gas field with Balochistan and Sindh provinces. Sharafat sai d the projects debt portion is expected to be secured from domestic and internati onal financiers including Sindh and Balochistan governments, Sui Southern Gas Co mpany, Sui Northern Gas Pipelines, Oil and Gas Development Company, Pak Petroleu m, Pak-

IranPakistan Peace Pipeline 63 Arab Refinery Company and National Bank. The NBP will contribute $190 million or 51 per cent of equity structure. Besides, potential private investors include P etronas of Malaysia and Gazprom of Russia which will contribute $183 million or 49 per cent of the equity structure. Further elaborating, Sharafat said Pakistan will construct about a 780-kilometre 42-inch diameter pipeline from the border, traversing along the Makran Coastal Highway to connect with existing gas transm ission network at Nawabshah. Almost 665 km of the pipeline will pass through Bal ochistan while about 115 km of the pipeline will be laid in Sindh. He said under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 million cu bic feet per day (mmcfd) of gas with a provision to increase it to one billion c ubic feet a day (bcfd). The senators suggested that the stakeholders in the pipe line routes must be taken into confidence, majority of which are remote and less developed areas, with clear-cut assurances about providing new schools, hospital s and vocational training centres. In response to queries, the MD Interstate Gas Systems said being one of the largest infrastructure project, the Iran-Pak pipe line will create new job opportunities in the provinces of Balochistan and Sindh , thus improving income level and standard of living of citizens. Sharafat state d the Gas Sale and Purchase Agreement was broad enough to allow force majeure in the event the project is hampered due to United Nations sanctions on Iran. He s aid in case the project does not materialise, a liquefied natural gas terminal w ill be set up at Gwadar to allow re-gasified LNG to the system. Giving the curre nt status of the project, Sharafat said a detailed route survey was in progress to pave the way for engineering and design of pipeline facilities. Later talking to media, the chairman Senate committee said it was important that the project start as soon as possible to bridge the rising natural gas demand-supply gap. Ghazanfar Ali, Express Tribune, July 8, 2010, http://tribune.com.pk/story/26363/ pak-portion-of-iran-gas-pipeline-to-cost-1-2b

64 IPRI Factfile P AKISTAN -I RAN P IPELINE : P AKISTAN TO C ONSTRUCT 780- KM , 42 I NCH D IAMETE R P IPELINE Pakistan will construct about 780-km, 42 diameter pipeline from the border, trave rsing along the Makran Coastal Highway to connect with its existing gas transmis sion network at Nawabshah, said Naim Sharafat, MD, Interstate Gas Systems (Pvt) Ltd (ISGS) here on Wednesday. Briefing the Senate Standing Committee for Petrole um and Natural Resources about the status of the Iran-Pakistan Pipeline project, he said almost 665-km of the pipeline will pass through Balochistan while about 115-km of the pipeline will be laid in the Sindh province, he said. This was th e first Senate Committee meeting held at SSGC since Iran and Pakistan inked the historic agreement in Tehran in June 2010 for the supply of natural gas to Pakis tan from 2015. The meeting was chaired by Sabir Ali Baloch, the Standing Committ ee Chairman. Naim Sharafat, MD, ISGS who was accompanied by his CFO Mobin Saulat dilated on the salient features of the 1,150 km pipeline, which will connect Ir ans South Pars gas field with Balochistan and Sindh provinces. The estimated cost of Pakistan segment is $1.2 billion to be incurred over a 4-year period, Mr. Sh arafat added. He further explained the project is planned to be funded at a debt equity ratio of 70:30 requiring an equity investment of $373 million and debt fi nancing of $872 million. Mr Sharafat said the projects debt portion is expected t o be secured from a combination of domestic and international financiers includi ng Sindh and Balochistan governments, SSGC, SNGPL, OGDCL, PPL, PARCO and NBP (wh ose contribution will be $190 million or 51% of equity structure) as well as pot ential private investors including Petronas and Gazprom (whose contribution will be $183 million or 49% of the equity structure). MD, ISGS stated that under the Gas Sale and Purchase Agreement (GSPA), Pakistan will import 750 mmcfd gas with a provision to increase it to one billion cubic feet a day (bcfd). The senators suggested that the stakeholders in the routes traversing the pipeline must be t aken into confidence, majority of which are remote and less developed areas, wit h clear-cut assurances for the provision of new schools, hospitals and vocationa l training centres. In response to the senators queries, MD, ISGS said that being one of the largest infrastructure projects the country has ever seen, the IP pr oject will create

IranPakistan Peace Pipeline 65 new job opportunities in the provinces of Balochistan and Sindh, thus improving the income level and the standard of living of its citizens. In response to the senators apprehensions, Mr. Sharafat stated that Iran-Pakistan Projects GSPA was b road enough to allow force majeure relief in the event the project is hampered d ue to UN sanctions on Iran. MD, ISGS said that in case the project does not mate rialize, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to th e system. Explaining the current status of the project, MD, ISGS said that a det ailed route survey was in progress to pave way for the engineering and design of the pipeline facilities. Daily Times (Lahore), July 8, 2010, http://www.dailytimes.com.pk/default.asp?pag e=2010\07\08\story_8-72010_pg5_15 P AKISTAN P LANS TO M OBILISE D OMESTIC F UNDING Pakistan plans to mobilise domestic funding for a multi-billion dollar gas pipel ine from Iran in the wake of U.N. sanctions on Tehran, which bar global lenders from supporting the project, a top government official said on Wednesday. The go vernment remains undeterred by the UN sanctions against Iran because of the burg eoning energy needs of the country, which spends $10 billion annually to import furnace oil just to run power plants, said petroleum secretary Kamran Lashari. Th ere is no doubt about financing being a big challenge, he said after a meeting of the Senates Standing Committee on Petroleum. We need to arrange $1.2 billion and we need to work hard for that. The committee was told that funding will be under a 70/30 debt to equity ratio, he said. SSGC, SNGPL, Pakistan Petroleum Limited, O GDC and National Bank can easily put together funds for the equity. The Managing Director of Interstate Gas Company Naim Sharafat said that some local pipeline m anufacturers assured the government of suppliers credit. The Interstate Gas Compa ny is spearheading the construction of Pakistans 780 kilometers section of the pi peline. Getting financiers is not as hard as it seems, he said. The government has already asked public sector entities to pump in the equity. The National Bank of Pakistan and other commercial banks can

66 IPRI Factfile also be approached to raise the money. The National Bank will also contribute $1 90 million, or 51 percent, to the equity structure. In case the project does not m aterialise, an LNG terminal will be set up in Gwadar to allow re-gasified LNG to the system. The total length of the pipeline from Iran to Pakistan is 1,900 kilo meters. Iran has already started the construction despite sanctions. There are d ifferent routes being considered for the project, but the likely route would be through the restive Balochistans Gwadar district. Pakistan depends heavily on the natural gas to run factories and households. Gas makes up nearly 50 percent of its total energy consumption. But demand has surpassed supply in recent years as existing wells deplete. Production stands at 4 billion cubic-feet per day, whil e demand stands at around 4,800mmcfd, according to some estimates. Pakistan seek s to import 750mmcfd from Iran. Lashari said that by the time Pakistan starts im porting gas from Iran in 2015, the demand would have doubled to 8 BCF. There woul d be a need to import much more. Security of the Iran-Pakistan gas pipeline remai ns a big issue. Baloch militants, who demand greater provincial autonomy, attack gas pipeline infrastructure regularly. Chairman of the committee Senator Sabir Ali Baloch said that the project would remain on track despite the security prob lems. We will have to address the grievances of the locals. Saad Hasan, News International (Rawalpindi), July 8, 2010, http://www.thenews.co m.pk/daily_detail.asp?id=249452 T EHRAN P RESSING I NDIA ON L AND G AS P IPELINE A direct land route to supply India with gas from Iran is the most economically feasible option, an adviser to Iranian energy officials said in Tehran. Asghar S oheilipour, an adviser to officials at the National Iranian Gas Co., said New De lhi was considering importing Iranian natural gas through an undersea route. He cautioned, however, that a direct route through Pakistan is the cheapest option for India, Irans state-funded broadcaster Press TV reports.

IranPakistan Peace Pipeline 67 Iran and Pakistan have agreed to build a pipeline from the South Pars gas field in the Persian Gulf. Soheilipour said that option was the most efficient route. Indian officials said they were interested in having Turkmenistan export gas to northern Iran in a swap for exports through an underwater pipeline. That pipelin e, part of broader South Asian initiative, would diminish the need for the overl and plan from Iran. The undersea option was raised during a May visit to New Del hi by Turkmen President Gurbanguly Berdimuhamedov. The Turkmen president before his trip called for the independent launch of the Turkmenistan-Afghanistan-Pakis tan-India pipeline, another rival to Irans pipeline to Pakistan. Washington opp oses any of the projects for its allies in Pakistan and India that include Iran. UPI Asia, July 9, 2010, http://www.upiasia.com/Science_News/ResourceWars/2010/07 /09/Tehranpressing-India-on-land-gas-pipeline/UPI20161278685538/ P AKISTAN G OING A HEAD WITH I RAN G AS L INE Pakistan is going ahead with the gas pipeline project with Iran despite the US w arning as Islamabads understanding of the Comprehensive Iran Sanctions Accounta bility and Divestment Act, 2010, is that it does not impact the long-awaited col laborative venture that is crucial to the countrys energy requirements. We analy sed the new law passed by the US Congress and our opinion is that it does not af fect the Iran-Pakistan gas pipeline as the sanctions are restricted to investmen t in petroleum refinement besides oil and gas sectors, said an official. Also, t his is an agreement between two governments and Pakistan is exporting; not impor ting or investing in Iran. Consequently, both countries are proceeding as per th e agreed schedule. Iran is constructing the last 300-km stretch of the pipeline from Iranshahr to the Chabahar port and Pakistan is conducting the feasibility s tudy on its leg of the pipeline from the border with Iran to Nawabshah, the hub of the countrys gas pipelines in the province of Sindh. On his last visit to Is lamabad mid-June, U. S. Special Representative to Afghanistan and Pakistan Richa rd Holbrooke had said there was a

68 IPRI Factfile possibility of the pipeline running into rough weather because of the sanctions imposed on Iran owing to Tehrans refusal to suspend uranium enrichment that cou ld produce fuel for a nuclear weapon. While Pakistan officials maintained that h e said this only to the media, Mr. Holbrooke was quoted by the American press af ter a special interaction as saying: We cautioned the Pakistanis to try to see wh at the [Congressional] legislation is before deciding how to proceed because it would be a disaster if we had a situation develop where an agreement was reached which then triggered something under the law. Though Mr. Holbrooke did not go in to the details of the legislation that was being drafted at that juncture, he sa id it could well be comprehensive and, therefore, cause problems for any company or country doing business with Iran. Primarily, according to the Special Repres entative, the U. S. had told Pakistan not to commit itself too much into the dea l till the contours of the legislation are known. The US warning came a week aft er Iran and Pakistan had inked the last in a series of agreements needed to oper ationalise the deal. As per the agreement, Iran will export more than 21 million cubic metres of natural gas daily from 2014 to Pakistan. The pipeline will faci litate transfer of natural gas from Irans biggest gas field in South Pars to Pa kistan through Balochistan. Iran has already constructed the 907 km-long section of the pipeline from Asalooyeh Energy Zone to Iranshahr. Anita Joshua, Hindu (India), July 9, 2010, http://www.thehindu.com/news/international/article507789.ece?service=mobile I NDIA , I RAN TO H OLD G AS P IPELINE T ALKS The multi-billion-dollar Iran-Pakistan-India (IPI) pipeline is back on Indias age nda with the government planning to hold a bilateral meeting in Teheran on the i ssue after a gap of at least two years. Petroleum secretary S. Sundareshan said the Iranian government proposed talks on the IPI to which India has agreed. The development comes in the backdrop of Indias indication of support for Iran agains t recent US sanctions. There is supposed to be a meeting of the joint working gro up to discuss the IPI-related issues, Sundareshan said. We had suggested dates in May which were not acceptable to the Iranian side. We are now given to understan d that they would like the meeting in Iran. We have accepted the location and as ked them to suggest dates.

IranPakistan Peace Pipeline 69 The last trilateral meeting on the IPI issue involving Iran, Pakistan and India was held in July 2007. What has not been understood is that the talks were stalle d on the question of Iran suggesting an alternate pricing formula. There has to be further discussion on this, Sundareshan said. This is a major issue which is to be resolved. Once this is resolved the question of transit fee with Pakistan an d transportation tariff will be taken up with Pakistan. Some 60 million standard cu. m a day (mmscmd) of gas likely to flow through the pipeline daily may be equ ally divided between India and Pakistan. The pricing formula for the gas, linked to the Japanese crude cocktail price, is for the gas reaching the Iran-Pakistan border from the source. A further price escalation is expected because of trans it rights and transport tariff to be paid to Pakistan by India. Talks on the 2,3 00km pipeline started in 1995, but have been delayed over price and transportati on fees India would have to pay Pakistan. While Indias clinching of the civilian nuclear agreement with the US slowed the process, Iran and Pakistan decided to g o ahead with the project without India, and have even extended a partnership off er to China. There have been no talks on IPI for more than two years. In June, th e Iranians had informed us that they were interested in holding talks, said anoth er senior petroleum ministry official who did not want to be named. India has re cently warmed up towards Iran to court the energy-rich Islamic republic with who m New Delhi has shared uneasy ties of late. The two also recently held a meeting of the India-Iran joint commission a panel that explores ways to boost economic ties between the two countriesafter a gap of 16 months. Iran is facing a fresh se t of international economic sanctions for refusing to end its nuclear programme. Ironically, India, which is heavily dependent on energy imports, last week crit icised the extra-territorial nature of the censureswithout naming the USsaying the s anctions would have a direct and adverse impact on Indian companies and on Indias e nergy security. While Iran has the worlds second largest oil and natural gas rese rves, India is the worlds fifth largest energy consumer and imports 75% of its ne eds, accounting for 3.5% of global energy consumption. The trade between India a nd Iran, is around $15 billion.

70 IPRI Factfile Foreign secretary Nirupama Rao last week said that Teherans importance as an ener gy partner stems from the natural complementarity between the needs of energy-hun gry India, which hopes to grow at a rate of 8-10% in the coming years, and Iran, which is home to the third largest proven oil reserves and second largest gas r eserves. Analysts, are however, sceptical about the pipeline becoming a reality. W e can keep talking about it but I dont think its viable. There are some technocommercial points that still need to be settled. One is the question of pricing and the second is the question of the physical security of the pipeline which pa sses through Pakistan, specifically the Baluchistan province, said Uday Bhaskar, security analyst and head of the National Maritime Foundation. Utpal Bhaskar, July 12, 2010, http://www.livemint.com/2010/07/11181639/India-Ira n-to-hold-gaspipeli.html?atype=tp T HE I RAN -P AKISTAN G AS P IPELINE Pakistans growing energy needs and Irans pool of energy resources make the two states natural economic partners, and served as the impetus behind the proposed gas pipeline, initially planned to include India as well. Pakistan recently dec ided to move forward with a gas pipeline project with Iran, despite warnings fro m the United States that involvement could subject Pakistani companies to new Un ited States sanctions. In an e-mail interview, Harsh V. Pant, lecturer in the De partment of Defense Studies at Kings College of London, explains the pipelines significance in the context Pakistan-Iran relations. WPR: What are the driving interests for both parties in this pipeline project? Harsh V. Pant: Pakistans g rowing energy needs and Irans pool of energy resources make the two states natu ral economic partners, and served as the impetus behind the proposed gas pipelin e, initially planned to include India as well. Facing an energy crisis that is h aving a damaging impact on the Pakistani economy, and with its domestic supplies of natural gas declining, Pakistan has now finalized the pipeline deal with Ira n, despite Washingtons demands to the contrary. Pakistans annual royalties fro m this project are expected to be between $500 million and $600 million. The pro ject, if finalized, would

IranPakistan Peace Pipeline 71 also represent a major boost to Irans efforts to prevent its global isolation a nd economic marginalization, at a time when the West is imposing strong sanction s over Tehrans nuclear program. WPR: What obstacles does the project still face ? Pant: The project faces a number of problems. Many in Pakistan believe that th e price that Iran is charging for gas will make the project economically unviabl e. The pressure from the United States to abandon the project remains as strong as ever, and if the confrontation between the US and Iran over the nuclear issue intensifies, Pakistan will find it difficult to move ahead with the project. Th e pipeline will also pass through volatile areas in Pakistan that present the th reat of insurgent sabotage. Finally, without the participation of India and/or C hina, the deal doesnt really make sense. Iran and Pakistan are hoping that Indi a will join the project sooner rather than later, but India has reservations ove r the pricing of the gas. New Delhis concerns over ensuring the security of the pipeline in Pakistans restive Balochistan province also makes it difficult for India to accept the deal in its present version. WPR: What is the status of bro ader Iran-Pakistan relations, both economic and political? Pant: Tehran and Isla mabad sought to improve bilateral relations after the fall of the Taliban in 200 1. But the economic relationship between Pakistan and Iran has largely been shap ed by Pakistans demand for Iranian oil. As a result, ties have not significantl y matured. The low level of economic exchange has hurt both states, as in the ab sence of a broadbased economic relationship, political and security tensions -particularly over the situation in Afghanistan -- have tended to dominate this r elationship. While both Tehran and Islamabad nominally support Afghan President Hamid Karzais government, neither neighbor has been willing to sacrifice its ow n interests in the country. With time, tension has increased. Iran retains its s pecial interests in Afghanistans western Herat region, while Pakistan considers the Pashto-speaking southern sections of Afghanistan to be within its sphere of influence. Kabul remains a contested area within that sphere. Kari Lipschutz, July 14, 2010, http://www.offnews.info/verArticulo.php?contenido ID=23536

72 IPRI Factfile I RAN P AKISTAN P IPELINE ONE -T HIRD C OMPLETED Islamabad has shrugged off the United States unilateral punitive measures against Tehran, saying sanctions will have no bearing on the IranPakistan gas pipeline project. The proposed project would be completed before 2014 as decided by the tw o countries in an agreement, a Press TV correspondent reported Pakistans Foreign M inistry spokesman Abdul Basit as saying on Tuesday. He added that the US bans wi ll not affect the multi-billion-dollar contract on the import of natural gas fro m Iran. The comments come a week after Pakistani Prime Minister Yousuf Raza Gila ni chaired a high-level meeting to finalize a strategy under which the Pak-Iran gas pipeline is to be laid. Gilani received a briefing from the petroleum and na tural resources officials and asked relevant authorities to finalize the project in no time. After facing opposition by its front line ally on the so-called glo bal war on terror, Pakistan has made it clear to the US that the pipeline, which will connect Irans South Pars gas field with Pakistans Balochistan and Sindh prov inces, is essential to meet its energy needs. The US administration tried to blo ck the deal to put more economic pressure on Tehran over its nuclear program. On June 12, the energy-starved South Asian country penned a gas pipeline deal with neighboring Iran under which Tehran agreed to deliver 21.2 million cubic meters (750 million cubic feet) of natural gas per day to Pakistan from 2014. Last mon th, US President Barack Obamas special envoy to Afghanistan and Pakistan Richard Holbrooke announced that Washington had sought to dissuade Islamabad from signin g the deal, amid plans to intensify pressure on Iran. Pakistan shrugged off the call, with Gilani saying Pakistan is not bound to implement US decisions. Iran, ho wever, has completed the construction of more than a third of the 2,600-kilomete r gas pipeline, which is estimated to cost $7 billion. July 16, 2010, http://pakistanledger.com/2010/07/16/ip-pipeline-one-third-comple ted/

IranPakistan Peace Pipeline 73 P AK -I RAN G AS P IPELINE A GREEMENT In a major breakthrough on the gas pipeline project, Pakistan and Iran signed on Tuesday the heads of agreement and an operational accord in Istanbul, clearing the way for implementation of the project of great significance to the two count ries. It is hoped that the physical work would begin soon and gas would start fl owing to Pakistan sometime in 2013. This is indeed a historic achievement and wo uld go a long way in overcoming the growing energy crisis in Pakistan and cement ing ties between the two brotherly countries. Pakistan, these days, is facing ac ute shortage of gas and the future scenario is all the more grim as domestic res erves are depleting fast while the demand is rising at unprecedented pace. No co untry can progress and prosper without ensuring energy security and it is good t hat Pakistan-Iran gas pipeline project is step towards that direction. The proje ct already got delayed considerably because of deliberate attempts by India to s abotage this vital venture, as New Delhi used it as a bargaining chip with the U nited States during discussions on nuclear accord to gain more concessions. It i s good that the two countries have now decided to pursue it as a bilateral proje ct but there are bright prospects of Chinese joining it because of mind-boggling energy consumption there. This option should also be pursued as Chinese associa tion would help accelerate implementation of the project and make it more viable . Similarly, we have also been hearing since long about possibilities of importi ng gas from Turkmenistan and Qatar as well but there has been no worthwhile prog ress towards that end. As energy demand is rising and development is directly li nked to energy security, it is time we move ahead on these two projects also. We can do the spadework for import of gas as well as electricity from Central Asia so that the projects are realized speedily upon return of normalcy in Afghanist an. Editorial, Pakistan Observer (Islamabad), July 18, 2010, http://www.pakobserver. net/201003/18/detailnews.asp?id=20801 G AS P IPELINE P ROJECT , T O D O OR N OT T O D O In line with a series of meetings in connection with the Pak American strategic dialogues, the American representative for Pakistan and Afghanistan, Richard Hol brooke has asked Pakistan to wait and see and

74 IPRI Factfile not to over commit itself till the new legislation regarding the energy sector o f Iran is drafted. He has told Pakistan that the US Congress will come with the new legislation that may apply to the project and has warned Pakistan in the cle ar words that the legislation may have vital implications for Pakistani companie s. It was the tenth visit of Richard Holbrooke since Barack Obama appointed him in this region. However the Pakistani Foreign Minister, Shah Mahmood Qureshi in his news conference at Multan airport on Sunday said that although Pakistan is f acing an acute dearth of energy but coming up with any final statement on the is sue will be premature. If this agreement comes under UN sanctions then the cours e of action will depend upon the circumstances and they will not violate any int ernational law. One wonders that on Saturday during a press conference with the Pakistani Foreign Minister Holbrooke was saying that the US had no objections ag ainst the pipeline project. But the very next day he retreated from its earlier stance. Well in a recent interview the Irani ambassador Masha Allah Shakri told the Pakistani anchor that America has high stakes in Iran. Geographical importan ce of Iran is above board. The general opinion is that not only in Iran but in t he whole Mid East America has its interests. Just look at a report of New York T imes, the American experts have discovered in Afghanistan huge underground reser ves of minerals. There is copper, iron, cobalt and light weight Lithium. Lithium reserves are greater than the biggest Lithium exporter, Bolivia. The global med ia points out that actually America wants to exploit the resources of Afghanista n and other countries of Mid East. Masha Allah Shakri in a blatant tone has ques tioned the validity of the right to America for becoming the guardian of peace i n this region. He said America came in Afghanistan with the plea to solve the pr oblem of narcotics, eradication of poverty, good governance and economic uplift. However none of these objectives have been so far materialized. It was indeed b affling to listen to the audacity of his stance. Hence keeping all these facts i n mind it would not be difficult to discern why America revoked his earlier view on gas pipeline project. The Pak Iran gas agreement involving $7b was signed on 13 June in Tehran. According to it for 25 years Iran will export 1 million cubi c meters of gas to Pakistan per day from 2014. On the very next day, the work st arted to lay the pipeline from Iran to the Pakistani frontier. The length of the said pipe line is 300 kilometers.

IranPakistan Peace Pipeline 75 Talking in this perspective, Pakistans petroleum secretary, Kamran Lashari told t he media that in three years Pakistan will lay 700 kilometers long pipeline from Nawab Shah to the Iranian frontier and its feasibility report will be prepared in one year. Gas is recognized as the fastest growing fuel source. As compared t o expensive sources of energy, natural gas is economical than coal, wood, oil an d it is environment friendly also. It is a cheap source of energy. Iran has the worlds second largest reserves of gas after Russia. The crisis of energy makes it incumbent on the two countries to nurture economic collaboration in the face of globalized realities which are able to change the political and social structur e of regions. They will be able to rephrase the issues like national security al so. This project will also give way to reap political benefits. This project boa sts a good opportunity for economic development not only for Pakistan but Iran a lso. As Iran needs $25b to revamp its energy sector. As a result of the said pro ject there will be development, enhanced employment opportunities, peace and pro sperity in the region. Potential economic collaboration is thus necessary for ha ving gains which will lead to engender a healthy relation for political discours e. It will be transformed and modified in this way. This trade also has the pote ntial to change the strategic face of the two countries and even other regions o f Asia and the Mid East. It speaks of the mutual trust the two countries share w ith each other. If we continue with it, we can also send the message to other po wers that Pakistan is an autonomous country and can go for striking any agreemen t for benefiting its economy. This agreement can be an expression of the capabil ity not to tolerate any interference on the part of any third party to take deci sions in national interest. But the real issue is the imposing of the UN sanctio ns on Iran pertaining to this project and the Prime Minister of Pakistan Syed Yu suf Raza Gillani has revealed on Tuesday that in such a case Pakistan will act a ccording to the international law. But otherwise Pakistan is not bound to go acc ording to the American decision regarding the restrictions on Iran. The agreemen t was signed at a time when the Security Council has asked the member countries to cut off every kind of co-operation with Iran. Also the resolution was passed to impose more sanctions on Iran on the pressure of America. Iran is hit by four th round of sanctions. The major allegation is that it is going ahead with its u ranium enrichment activities. The member

76 IPRI Factfile countries are asked to refrain from investing in military equipment. It was a si xth resolution against Iran during four years which was presented in the UN. The cargo planes will be searched as per resolution. 40 Iranian companies and perso ns are banned to do business in other counties. The member countries will inform UN about the activities of Iran within sixty days as to act upon the sanctions is a must for them. 12 out of 15 countries in UN voted to impose sanctions. But Iran has given an inkling that it will not yield in like Syria and Lybia. How th is project will help solve inter and intra regional conflicts lies in the fact t hat it will facilitate the way and reassess the roles of both the countries for conflicts over Iranian Balochistan issue, differences over Shia-Sunni and Afghan istan conflicts. There were some misunderstandings regarding the drilling of oil from Balochistan contiguous to Iran. It was a common assumption that Iran plays a role in destabilizing Balochistan so that Pakistan may not be able to obtain oil or gas from here because the underground flow of oil is from Iran to Balochi stan and Pakistan can get this black gold with much ease. These and other proble ms of such type will be likely to spell out once we enter into a regular deal wi th Iran and it is carried on without any interference. The major task is to lay the gas pipeline. It must be ensured that unnecessary delay should not be there for the preparation of report, its analysis and final approval. Therefore this t ask should be assigned to the experts. Efforts should be devised to ensure for i ts timely completion. Political parties should cooperate for successful completi on of this project. The project was planned in the 1990s. The land route include d the laying of pipeline from Asaluyeh to Bandar Abbas, Iranshahr and Khuzdar. F rom there it was to be laid to Karachi and to Multan and then from Multan to Del hi as India was also included. Regarding the sea route it was to follow the rout e from Persian Gulf to Arabian Sea. Earlier India was supposed to be a party to this agreement but it was in favour of an off shore laying of pipeline. This was not possible due to practical hinges. Moreover India suspected the disruption o f flows by the extremist forces in Pakistan. Further on American pressure it qui tted last year. Its withdrawal was also caused by striking of a nuclear deal wit h America but, in case of Pakistan, will there be something concrete if

IranPakistan Peace Pipeline 77 Pakistan retreats? It must ask for nuclear reactors along with the transfer of t echnology for production of power to meet its starving energy situation. Shanzeh Iqbal, July 22, 2010, http://www.pakspectator.com/gas-pipeline-project-to -do-or-not-to-do/ IP G AS L INE : P AKISTAN M AY R AISE $1.6 B ILLION I TSELF Pakistan is considering generating $1.6 billion internally to fund the IranPakis tan gas pipeline project as it fears foreign firms may be susceptible to US pres sure, Business Recorder has learnt reliably. "The government is trying to genera te funds from Government Holding Company, Pakistan Petroleum Limited (PPL), Nati onal Bank of Pakistan (NBP) and some other local companies to execute the IP pro ject," sources said, adding that SSGC and SNGPL may also contribute to funds. Th e government had shortlisted a German firm "ILF" to conduct feasibility study on the gas pipeline project, but officials believe that now it would be better to award the contract to local companies such as SSGCL and SNGPL instead of the Ger man firm which may step back any time due to US pressure. Inter State Gas System (ISGS)s board recently set up an Implementation Committee to move forward on the project. Sources said ISGS would ink Gas Sales Purchase Agreements (GSPAs) with SSGCL and SNGPL, a prior requirement to identify the projects financiers. "The board of National Iranian Oil Company (NIOC) has also approved a gas pipeli ne deal between Pakistan and Iran," sources said, adding that Iran has conveyed this to the Pakistani government. Pakistan will depend on local oil and gas comp anies to generate funds of around $1.6 billion to carry out the project. Respond ing to a question about funding from Iranian side for the project, officials sai d Pakistan would not seek funds from Iran. "By generating funds from local sourc es, the cost of gas will remain at reasonable level," sources said. Pakistan and Iran would be responsible for the laying of the pipeline in their respective te rritories. Work on the pipeline project will be completed by 2014. Work on the 9 00 kms pipeline in Iranian territory has already been completed whereas the work on the remaining 250 kms will be completed soon. Business Recorder (Islamabad), July 27, 2010, http://www.brecorder.com/index.php ?id=1084499&currPageNo=2&query=& search=&term=&supDate=