Iranian Oil Minister Bijan Namdar Zanganeh reportedly stated in Dubai that "the contract for supplying gas to Pakistan is likely to be annulled," and cited Pakistan's inability to pay for the cost of laying the pipeline as the major impediment to its implementation. His assessment was based on the government of Pakistan's recent request to the Iranian government to extend financial assistance of 2 billion dollars that would enable it to lay the pipeline on its side of the border. The question arises as to whether this is the sole reason behind Zanganeh's recent prognosis on the likelihood of project implementation. Informed sources within the Ministry of Petroleum and Natural Resources told Business Recorder that the PML-N government had requested Iran to renegotiate the price of gas. Dr Salman Shah, Advisor to Prime Minister Shaukat Aziz on Finance during the Musharraf era, revealed that in 2007 the price agreed was 45 percent of crude oil parity and he questioned the agreement signed by the PPP-led coalition government setting the price at 82 percent of crude oil price in the international market. Dr Shah also suggested that the National Accountability Bureau (NAB) be directed to investigate the matter of pricing. Ever since, Iran has become an Islamic Republic it has not shown any soft corner for its predominantly Sunni neighbour - Pakistan - to lend it a helping hand. It was the Shah of Iran who agreed to establish a Pak-Iran Refinery project in Pakistan after establishment of a Pak-Iran textile project in Balochistan and also a paper mill in Karachi under the umbrella of an RCD project (Security Papers Limited). The refinery proposal was later shelved. In the eighties, Gen. Ziaul Haq used to be termed a President Jimmy Carter's poodle by Radio Tehran for Pakistan's increasing co-operation with the West opposing Soviet invasion of Afghanistan - another neighbour of Iran.
Since the sanctions were hurting Iran economically and it was feeling isolated; Iran finally agreed to sign the gas contract with Pakistan without Indian participation (before imposition of sanctions, Iran was not willing to sign gas supply contract without Indian participation) and also provide help in the laying of pipeline on Pakistan's side which is estimated to cost 2 billion dollars. Pakistan is not blameless also in this on and off scenario on supply of gas. It has earlier tried to equate domestic cost gas with Iranian supply, ie, if Iran wanted $4 per mmcfd - Pakistan would offer $2 per mmcfd. Pakistan government under General Ziaul Haq was unwilling to annoy the American administration when the offer was made by an Australian company (BHP) which wanted to develop the South Pars gas field and lay a pipeline up to Sui. Zardari government finally agreed to purchase natural gas at 82 percent of the international oil price. PML-N on coming to power felt this was quite high as it would cost Pakistan 12 dollars per mmcfd. PML (N) government wrote to Iran to renegotiate and reduce the gas supply price. Now that Iran has laid the pipeline within a short distance from its Bandar Abbas port it has the option to use the same funds which it committed to Pakistan to put up a CNG liquefaction plant and a terminal for export of LNG to the Far East provided the Western sanctions are diluted. It may also be recalled that India backed out of the IP gas pipeline project even when the price was set at 45 percent of crude oil parity on the grounds that it is not economically feasible given the massive differential between the domestic gas price and the IP gas pipeline price. The price of IP gas is estimated at 12 dollars per million metric British Thermal Units (mmbtu) while Pakistan's domestic price of gas is only 4.5 dollars per mmbtu. Granted that 12 dollars per mmbtu is much cheaper than alternate sources of gas (namely from Turkmenistan) as well as LNG from Qatar yet the question arises as to why the previous government deemed it prudent to renegotiate a much higher price. There is no doubt that Iran has, over decades of negotiations on the IP gas pipeline project, succeeded in upping the price of IP gas several times. In other words, Iran may have actually taken advantage of the severe energy crisis in Pakistan and astutely negotiated the price to meet its own burgeoning economic needs to generate foreign exchange, an objective that was held hostage to the economic sanctions against the country. Pakistan therefore clearly came out as the loser in these negotiations. Thus there is a need to not only explore the possibility of price renegotiation given that this project's completion would be well before other mega projects notably ongoing hydel projects that would enhance generation capacity but also to stay the Finance Minister's hand to transfer dedicated funds (in GDS) to the treasury.
We understand Pakistan is caught between the rock and a hard place. It wants to avoid imposition of UN sanctions or the anger of its main cash provider - the United States of America. Its failure of our foreign policy to make our friends in the West understand that an energy-starved Pakistan needs gas from Iran. At 12 dollars per mmcfd Iranian piped gas is cheaper than imported LNG. Equating either with imported LNG or lesser priced coal gasification is wrong. Both options require not only more investment but also time. It smacks of our failure not to meet the full potential of the economy. We are losing over two percent of growth due to energy shortages. Pakistan requires to tap all options ie Pak-Iran piped gas; LNG imports; imported coal as well as usage of domestic Thar coal; nuclear plus alternate fuels such as solar and wind to meet the growing needs of economy and domestic consumers.
Monday, November 4, 2013
Pak-Iran:IP gas pipeline: another lost opportunity
Iranian Oil Minister Bijan Namdar Zanganeh reportedly stated in Dubai that "the contract for supplying gas to Pakistan is likely to be annulled," and cited Pakistan's inability to pay for the cost of laying the pipeline as the major impediment to its implementation. His assessment was based on the government of Pakistan's recent request to the Iranian government to extend financial assistance of 2 billion dollars that would enable it to lay the pipeline on its side of the border. The question arises as to whether this is the sole reason behind Zanganeh's recent prognosis on the likelihood of project implementation. Informed sources within the Ministry of Petroleum and Natural Resources told Business Recorder that the PML-N government had requested Iran to renegotiate the price of gas. Dr Salman Shah, Advisor to Prime Minister Shaukat Aziz on Finance during the Musharraf era, revealed that in 2007 the price agreed was 45 percent of crude oil parity and he questioned the agreement signed by the PPP-led coalition government setting the price at 82 percent of crude oil price in the international market. Dr Shah also suggested that the National Accountability Bureau (NAB) be directed to investigate the matter of pricing. Ever since, Iran has become an Islamic Republic it has not shown any soft corner for its predominantly Sunni neighbour - Pakistan - to lend it a helping hand. It was the Shah of Iran who agreed to establish a Pak-Iran Refinery project in Pakistan after establishment of a Pak-Iran textile project in Balochistan and also a paper mill in Karachi under the umbrella of an RCD project (Security Papers Limited). The refinery proposal was later shelved. In the eighties, Gen. Ziaul Haq used to be termed a President Jimmy Carter's poodle by Radio Tehran for Pakistan's increasing co-operation with the West opposing Soviet invasion of Afghanistan - another neighbour of Iran.
Since the sanctions were hurting Iran economically and it was feeling isolated; Iran finally agreed to sign the gas contract with Pakistan without Indian participation (before imposition of sanctions, Iran was not willing to sign gas supply contract without Indian participation) and also provide help in the laying of pipeline on Pakistan's side which is estimated to cost 2 billion dollars. Pakistan is not blameless also in this on and off scenario on supply of gas. It has earlier tried to equate domestic cost gas with Iranian supply, ie, if Iran wanted $4 per mmcfd - Pakistan would offer $2 per mmcfd. Pakistan government under General Ziaul Haq was unwilling to annoy the American administration when the offer was made by an Australian company (BHP) which wanted to develop the South Pars gas field and lay a pipeline up to Sui. Zardari government finally agreed to purchase natural gas at 82 percent of the international oil price. PML-N on coming to power felt this was quite high as it would cost Pakistan 12 dollars per mmcfd. PML (N) government wrote to Iran to renegotiate and reduce the gas supply price. Now that Iran has laid the pipeline within a short distance from its Bandar Abbas port it has the option to use the same funds which it committed to Pakistan to put up a CNG liquefaction plant and a terminal for export of LNG to the Far East provided the Western sanctions are diluted. It may also be recalled that India backed out of the IP gas pipeline project even when the price was set at 45 percent of crude oil parity on the grounds that it is not economically feasible given the massive differential between the domestic gas price and the IP gas pipeline price. The price of IP gas is estimated at 12 dollars per million metric British Thermal Units (mmbtu) while Pakistan's domestic price of gas is only 4.5 dollars per mmbtu. Granted that 12 dollars per mmbtu is much cheaper than alternate sources of gas (namely from Turkmenistan) as well as LNG from Qatar yet the question arises as to why the previous government deemed it prudent to renegotiate a much higher price. There is no doubt that Iran has, over decades of negotiations on the IP gas pipeline project, succeeded in upping the price of IP gas several times. In other words, Iran may have actually taken advantage of the severe energy crisis in Pakistan and astutely negotiated the price to meet its own burgeoning economic needs to generate foreign exchange, an objective that was held hostage to the economic sanctions against the country. Pakistan therefore clearly came out as the loser in these negotiations. Thus there is a need to not only explore the possibility of price renegotiation given that this project's completion would be well before other mega projects notably ongoing hydel projects that would enhance generation capacity but also to stay the Finance Minister's hand to transfer dedicated funds (in GDS) to the treasury.
We understand Pakistan is caught between the rock and a hard place. It wants to avoid imposition of UN sanctions or the anger of its main cash provider - the United States of America. Its failure of our foreign policy to make our friends in the West understand that an energy-starved Pakistan needs gas from Iran. At 12 dollars per mmcfd Iranian piped gas is cheaper than imported LNG. Equating either with imported LNG or lesser priced coal gasification is wrong. Both options require not only more investment but also time. It smacks of our failure not to meet the full potential of the economy. We are losing over two percent of growth due to energy shortages. Pakistan requires to tap all options ie Pak-Iran piped gas; LNG imports; imported coal as well as usage of domestic Thar coal; nuclear plus alternate fuels such as solar and wind to meet the growing needs of economy and domestic consumers.
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