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National Institute of Management 14th Senior Management Course

Presenter : Muhammad Abbas Baloch, Ex-PCS Sindh

Faculty Advisor :

Dated :

IRAN PAKISTAN GAS PIPELINE PROJECT

Sequence

• History of Project• Justification of Project as Solution of

Energy Crisis.• Background of Sanctions & Applicability

to IP Project• Recent Progress• Recommendations

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AIM

• To familiarize the participants about Iran Pakistan Gas Pipeline Project

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History of Project

• Idea was first conceived by young Pakistani Engineer Malik Aftab Khan in 1950 in an article with the name of “Persian Pipeline” of his was published by the Military College of Engineering, Risalpur.

• Idea was conceptualized in 1989 and Iranian Government responded positively

4http://archives.dawn.com/archives/29795 -IPI Project and US by Tariq Fatemi, Daily Dawn ( Karachi), August 12th 2010.

The 'peace pipeline'". The National. May 28, 2009.

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• Initially, the 2,775 km long pipeline (approximately 1100 Km in Iran, 1000 Km in Pakistan and 600 Km in India) was proposed to emanate from South Pars Gas field in Iran and pass through Bandar Abbas, Khuzdar, Sui to Multan and then to New Delhi

• Initial cost of construction was estimated at US$ 7.5 billion.

Iran- Pakistan Peace pipeline- Editor Dr. Noor ul Haq (History & Perspective)

• Discussion started in 1994 and agreement signed in 1995 and it was agreed to construct pipeline from South Pars Gas field in Iran to Karachi

• In February 2007, India and Pak agreed to pay Iran US 4.93 Dollar per Million British Thermal unit.

• In April 2008, China shown interest in project and in 2010 Bangladesh also join the project

• In 2009 India withdrew from project over pricing and security issue after signing nuclear deal with US.

Contd

6Source: Cadre and Composition Rules 1954

Contd• No progress till 2004 and project revived after

UNDP report which referred project as peace and prosperity Gas pipeline

• 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 General Assembly Session

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Project Profile

• Length. Total length is 2775 Km. 1172 km of length is in iran and known as Iran 7th Cross Country gas pipeline and remaining length in Pakistan.

• Route. Starts from Asalouyeh, Bandar-e-

Abbas, ( Iran) to khuzdar, sui and Multan

( Pakistan).

• Diameter 56 in (1,422 mm)

8Noor ul Haq, (2010-07-31). Iran-Pakistan Peace Pipeline.

Project Profile

• Capacity. Initial capacity would be 8.7 billion cubic meter which is expected to be raised to 40 billion cubic meter.

• Cost. Expected cost to incur on completion would be around 8 billion US Dollar.

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Noor ul Haq, (2010-07-31). Iran-Pakistan Peace Pipeline.

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.

Justification of Project as an immediate solution to Energy Crisis

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Energy Crisis

• Supply and Demand Gap in Pakistan is described in following diagram

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• 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.

Power Generation Mix in Pakistan

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• Unfavorable generation fuel mix which is cause of high electricity tariff is shown in following diagram

• Pakistan after completion of project will import around 750 mcft of natural gas daily for generation of approximately 4000 MW of electricity.

• Replacement of imported furnace oil by Iranian gas in our industries will result in estimated saving of billions of rupees

14Energy Policy finalized but not announced- Daily Dawn June 29, 2013

Background of Sanctions & Applicability to IP Project

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• United States asked Pakistan to abandon the project and in return US will fund construction of (LNG) liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan Wakhan Corridor.

• On, 29th January US Consulate General Michael Dodman threatened with Economic Sanction

• Saudi Arabia is also offering Alternative Package of cash loan and oil facility if Pakistan abandon the project.

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Sanctions and Pipeline

US & UN Sanctions Regime

• Iran is currently under three layers of international

sanctions targeting its alleged pursuit of “non-

peaceful” nuclear activities

A unilateral sanction regime imposed by the US in

conjunction with the EU and multilateral regime under

the frame work of the United Nations

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US and UN Sanction Regime

The Iran Sanctions Act (ISA) is a modified version of the 1995 “Iran Libya Sanctions Act” (ILSA) and was passed by US Congress on30th September 2006. The act 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

The UN sanctions on Iran have been imposed via four binding Security Council resolutions, namely 1737 (2006), 1747 (2007), 1803 (2008) and 1929 (2010) .

A Possible Way Out• 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 might be considered an investment

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• 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

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Total Case and US Sanctions

Would the Pipeline be an “investment” under US Sanctions

The Iranian side of the project will be financed entirely by Iran and a group of multi-national investors Iran will be required to put together

Pakistan's investment in the project will start only after the pipeline reaches Pakistani territory

Applying a plain-meaning interpretation of ILSA, 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.”

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Meeting between Pakistan PM and Iran President in 86th UN General Assembly Session both leader stressed on 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.“

Recent Progress

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 .

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RecommendationsPipeline 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. The completion of IP Pipeline will be a test case of our diplomatic and political triumph in future.

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• 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.

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• 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.

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THANK YOU