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Iranian Oil Minister Bijan Namdar Zanganeh recently stated 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.
Recently, the Government of Pakistan requested Iran to renegotiate the price of gas. Dr Salman Shah, a former Advisor to former PM Shaukat Aziz on Finance, revealed that in 2007 the price agreed was 45% of crude oil parity. He questioned the agreement signed by the previous regime that set the price at 82% of crude oil price in the international market.
Ever since Iran has become an Islamic Republic, it has not shown any soft corner for Pakistan. 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 ‘Security Papers Limited’ in Karachi, under the umbrella of an RCD project. But, the refinery proposal was later shelved.
In the eighties, Gen Zia-ul-Haq used to be termed as President Carter’s poodle by Radio Tehran for Pakistan’s increasing cooperation with the West against the Soviet invasion of Afghanistan.
Since post-sanctions Iran was hurt economically, and was feeling isolated; it agreed to sign the gas contract with Pakistan without Indian participation which it was not willing to sign without Indian participation before imposition of sanctions. It also provided 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 gas supply. It has earlier tried to equate domestic cost gas with Iranian supply, i.e. If Iran wanted $4 per mmcfd, Pakistan would offer $2 per mmcfd. Under General Zia-ul-Haq, Pakistan 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. However, Zardari government finally agreed to purchase natural gas at 82% of the international oil price.
The government felt that the price was quite high as it would cost Pakistan 12 dollars per mmcfd. So, it wrote to Iran to renegotiate and reduce the price. Now that Iran has laid the pipeline within a short distance from its Bandar Abbas port, it can 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.
There is no doubt that Iran has, over decades of negotiations, 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.
Pakistan is caught between the rock and a hard place. It wants to avoid imposition of UN sanctions or the wrath of the US. Pakistan failed to make its Western friends 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 per cent of growth due to energy shortages. Pakistan requires to tap all options i.e. 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.
Courtesy:
Business Recorder
