2. National Institute of Management
14th Senior Management Course
PAK-IRAN GAS PIPE LINE; PROS AND CONS
Presenter
:
Muhammad Abbas Baloch,
Ex-PCS Sindh
DS Faculty
:
Ms Zarrin Qureshi
Dated
:
2oth November 2013
2

3. Sequence
•
•
•
•
•
•
•
History of Project
IP Project as Solution to Energy Crisis.
Risk Analysis of Project
US Sanctions & Applicability to IP Project
Geo Politics of Gas Pipe Lines
Recent Progress
Recommendations
3

4. AIM
• To familiarize the participants about
Pakistan Iran Gas pipe line and its
pros and cons.
4

5. History of Project
• Idea was first conceived by young Pakistani
Engineer Malik Aftab Khan in 1950 in an article
published by the Military College of Engineering,
Risalpur with title “Persian Pipeline” .
• Idea was finalized in 1989 and Iranian
Government responded positively.
• Initial cost of construction was estimated at
US$ 7.5 billion and an agreement signed in
1995 to construct pipeline from South Pars Gas
field in Iran to Karachi
Source:The 'peace pipeline'". The National. May 28, 2009.
5

6. Contd/
• No progress till 2004 and project revived after
UNDP report which referred project as peace
and prosperity Gas pipeline
• In February 2007, India and Pak agreed to pay
Iran US 4.93 Dollar per Million British Thermal
unit.
• In 2009 India withdrew from project over pricing
and security issue after signing nuclear deal with
US
Source: Iran- Pakistan Peace pipeline- Editor Dr. Noor ul Haq (History & Perspective)
6

7. Contd/
• On 30th January 2013, Pak approved deal with Iran
for laying Pakistani segment of pipeline and on 11th
March 2013 project was inaugurated by President
Asif Ali Zardari
• PM Nawaz Sharif Assured commitment to project in
recent 68th Annual UN General Assembly Session
Source Pakistan energy book 2011- USAID March 2013 report on Circular Debt
7

8. Project Profile
• Length. Total length is 2775 Km. 1172 km of
length is in Iran and remaining in Pakistan.
• Route. Starts from Asalouyeh, Bandar-e- Abbas,
( Iran) to khuzdar, sui and Multan
• Diameter
( Pakistan).
56 inch (1,422 mm)
• Capacity. Initial capacity would be 8.7 billion cubic
meter which will be raised to 40 billion cubic meter.
• Cost. Expected cost to incur on completion would
be around 8 billion US Dollar.
Source: Noor ul Haq, (2010-07-31). Iran-Pakistan Peace Pipeline.
8

9. Route of IP Gas Pipe Line
9

10. IP Project as Solution to Energy
Crisis
10

11. Project as solution to Energy Crisis
• In Pakistan 50 % of generation is on Gas and
30% on oil and non availability of gas is directly
impacted on electricity generation.
• Only 21% population has an access to natural
gas and with rapid urbanization, the demand is
growing
• The supply and demand gap is around 1.2 Bcfd
which will rise to 3.1 Bcfd by the year 2015 and
ultimately to 11.1 Bcfd by the year 2025
Risk Analysis for Construction and Operation of Gas Pipeline Projects in Pakistan by S M Mubin
accessed on 13th November 2013.
11

12. Cond/
 Impact of Energy Crisis has been visible in
Pakistan as it has been battering all sectors in
including domestic industrial, agriculture and
commercial sectors.
 Official statistic suggest that more than
400000 have lost job and annual loss is
estimated to be around 240 Billion Pak
Rupees.
Source:Energy Crisis in Pakistan by Muhammad Asif, Quarterly magazine of South
Asian Journalists & Scholars (July- September 2010), volume 29
12

13. Energy Crisis
• Supply
and Demand Gap in Pakistan is described in
following diagram
13

14. Contd/-
• Most of our IPPs ( Independent Power Producer)
are on furnace oil and cost of furnace oil is
increasing sharply thus driving up the cost of
power generation.
• Cost of furnace oil increased in real terms from $
236 per ton to $ 639 per ton.
Chapter 14, Energy - Pakistan Economic Survey 2012-13
14

15. Power Generation Mix in Pakistan
• Unfavorable generation fuel mix which is cause of
high electricity tariff is shown in following diagram
15

16. Contd
•
•
The sharp increase in the cost of furnace
oil coupled with the increase in the share
of oil based generation
is
causing
abnormal increases in the cost of power
generation
Pakistan after completion of project will
import around 750 mcft of natural gas
daily for generation of approximately 4000
MW of electricity.
Source: Energy Policy finalized but not announced- Daily Dawn June 29, 2013
16

17. Contd
• Replacement of imported furnace oil by
Iranian gas in our industries will result in
estimated saving of billions of rupees.
• The pipeline will generate employment
opportunities in Baluchistan and will also
result in economic prosperity of Pakistan.
Source: Energy Policy finalized but not announced- Daily Dawn June 29, 2013
17

18. Re-evaluating Gas Price
• Current formula is defective as it allow Pakistan to
have gas at around 87 % of crude oil price but
price should be lowered as Turkey and Armenia
are importing gas at much lower price from Iran
• Cost of gas offered to Pakistan was around 2$ per
MMBTU and now it is at around 14$ MMBTU.
• There is need to delink the gas price from oil price
in international market and fortunately Iran is
willing to consider gas pricing concessions for
Pakistan
Source : Pakistan Should Advance after re-evaluating gas price, The Dawn,
13th
18
November 2013

19. Risk Analysis of Project
19

20. • Risk During Construction
Risks during construction are generally related to
risk during execution of work processes, material
availability, manpower, finances (budget),time
frame, legal and environmental.
• Risk During Operation
More precisely, risk during operation of IP pipeline
include, Safety and security Risk, Investment Risk
and Risk due to Natural Calamities
20

21. US Sanctions & Applicability to IP
Project
21

22. US & UN Sanctions Regime
• Iran is currently under three layers of international
sanctions including a unilateral sanction regime
imposed by the US in conjunction with the EU
and multilateral regime under the frame work of
the United Nations
The Iran Sanctions Act (ISA) is a modified version
of the 1995 “Iran Libya Sanctions Act” (ILSA) and
it requires the US President to impose sanctions
on foreign companies that invest more than US$
20 million in one year in Iran’s energy sector
Source: Iran-Libya Sanctions Act, 50 U.S.C.
1701 note (1996)
22

23. A Possible Way Forward
• Careful study of US sanction laws reveal strange
loopholes in the text as Investment" defined as
the entry into a contract that includes
responsibility for the development of petroleum
resources in Iran or Libya
• Statute silent as to whether the construction of
energy transit routes from Iran considered an
investment or not
23

24. Pakistan could escape from security council
sanctions on trading with Iran by :a. Pakistan Could opt for waiver just like the one
sought by Turkey and Turkmenistan as these
countries have asked for waiver stating that
they needed to trade with Iran on the based on
their energy needs
b. Secondly, Pakistan can sign a bilateral
investment treaty with Iran
24

25. Total Case and US Sanctions
• The French oil company, Total SA, struck a $2
billion deal with Iran in September 1997, to
develop natural gas reserves in Iran’s South Pars
field
• This was the largest single foreign investment in
Iran since the U.S. Embassy in Tehran was
sacked in 1979
• Clinton Adm. found that deal violated ILSA, but
ultimately decided to waive sanctions
Sanctions& pipeline by Khurrum Hussain, Daily Dawn (Karachi) dated March 14,2013,
25

26. Turkey, Azerbaijan and Armenia Case
• It is worth mentioning that, countries, like
Turkey, Azerbaijan and Armenia continued to
import gas from Iran and from the same
company (National Iranian Oil Company) from
which Pakistan intended to buy gas.
26

27. Would the Pipeline be an “investment”
under US Sanctions
 The Iranian side of the project has been financed
entirely by Iran
 Pakistan's investment in the project will start after the
pipeline reaches Pakistani territory
 Applying a plain-meaning interpretation of ISA,
Pakistan’s involvement could be interpreted as one
that does not directly contribute “to the enhancement
of Iran’s ability to develop petroleum resources of
Iran.”
27

28. Energy Geo- Politics and South Asia
28

29. US-India Front
• The strategic interest of India and US
converging
• With Ambition to become a global power and
history of troubled relation with Pak and China, it
suits India to remain allied with US.
• Building IPI would mean contrary to India
interest therefore, it isolated itself from the
project
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of
South Asian Scholar and Journalist Jan to March 2010
29

30. Russia- Iran Front
• Europe imports 41% of its gas from Russia and its
Russian plan to make Russia an energy hub with
a vast network of pipelines in its North, South and
West Corridor.
• The Development of South Corridor is possible
through a pipeline from Central Asia, Afghanistan,
Pakistan, China and India.
• Russian see IP will be detrimental to construction
to TAPI which will effect on Russian dominance.
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of South
30
Asian Scholar and Journalist Jan to March 2010

31. China Role
• China see Iran as far safer and strategic
source of energy for its ever expanding
economy and an important link through
Pakistan
• China and Pakistan are already working
on proposal to laying a trans Hamalyia
pipleline to carry Middle eastern crude oil
to China
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of
South Asian Scholar and Journalist Jan to March 2010
31

32. Recent Progress
 Meeting between Pakistan PM and Iran President
in 86th UN General Assembly Session both leader
underlined the need for early completion of project
 PM in an interview in Us said that needs gas very
badly. "We have to run our power plants and we
need gas for them. There is an acute shortage of
gas in Pakistan, so we have to import gas from
somewhere.“
Source: Iran, Pakistan vow to boost bilateral ties, The Iran project,25th September 2013
32

33. Contd
• Pakistan PM in an interview said that we would
proceed "unless US give us the gas, or the $3
million a day."
• Pakistani petroleum minister met with Iranian
counterpart in meeting held on 8th October 2013
to provide $2 billion for the construction work .
Source: Iran Pakistan commitment to IP Project, The Nation 25th September 2013
33

34. • The Minister for Water and Power, Khawaja Asif
while explaining his government’s position on
the controversial project on its visit to US on 12th
of November has reiterated Pakistan stance
that, Building the Iran-Pakistan gas pipeline is
our contractual liability and If we do not do so,
we will have to pay the penalty for breaching the
contract.”
Iran pipeline contractual obligation, The Dawn, 13th of November 2013
34

35. Iranian Perspective about Pakistan
Commitment
• From total cost of $ 1.5 billion and Iran agreed
to partially finance the pipeline by providing the
funding of $500m. An agreement for $250m was
signed during President Asif Ali Zardari’s visit to
Tehran.
• This clearly states that there is no financing
problem and Pakistan is trying to find way out of
project due to fear of US Sanctions.
Source: Uncertainty over Iran Pipeline Project, The Dawn, 8th November, 2013
35

36. Contractual Obligation
• Pakistan is under contractual obligation to
began construction of pipeline in Pakistani
portion.
• Breach of contract would entitle Pakistan
to pay a penalty of 3M US Dollar per day.
• Additionally, it would also result in
deterioration of our relation with Iran and
further worsen the energy shortfall in
Pakistan
Source Iran pipeline contractual obligation, by Anwar Iqbak, The Dawn 13th November 2013
Source : Pipeline Ambiguity, The Dawn, 15th November, 2013
36

37. Recommendations
 Pipeline does not bring peace but peace
brings projects such as cross-border gas
pipelines. Pakistan needs to move ahead,
play its due role to complete the project.
 Constructive engagement and
diplomatic
reconciliation
with US rather than
confrontation should be our focus
37

38. • This IP pipeline presents Pakistan with an
opportunity to establish itself as a reliable energy
corridor or energy transit hub thereby not only
achieving energy security for itself but also earn
substantial amount of foreign exchange in terms
of transit fees and royalties from pipeline by luring
India and China into the project.
• it is imperative to address the Baluchistan
problem properly and justifiably as to removing
this major bottle neck hindering this enormously
vital project.
38

39. • Keeping in view the projected increase in
energy demand and expected short fall of
around 10 bcf by 2025 (2500 MMSCFD by
2015), the above pipeline would be vital to
meet the shortfall and trigger economic growth
in Pakistan.
• Pakistan Should stressed to delink the gas
price from oil price in international market as
Turkey and Armenia are importing gas from
Iran at much lower rate than current rate of
14$ MMBTU offered to Pakistan.
39

40. THANK YOU
40