While Pakistan is demanding that the U.S. pave the way for its long pending natural gas pipeline from Iran by easing sanctions, a new report claims that the gas purchase agreement and pricing should be renegotiated or else the project could be a death sentence for the country’s economy.
The report by Sustainable Policy Development Institute (SDPI), titled “Rethinking Pakistan’s Energy Equation: Iran-Pakistan Gas Pipeline”, indicated that since the price of the gas purchased under the Iran-Pakistan pipeline project is linked to crude oil prices, it is unfortunate that the country blatantly ignored the energy dynamics and its pricing while going for this deal.
The authors’ calculations reveal that the Iran-Pakistan gas pipeline project is not the panacea for Pakistan’s energy problem, but more of a bailout plan. The country will have to look at creative options that are not limited to unconventional and alternate energy sources. Almost 50 per cent energy needs are met through natural gas. Trashing claims that the pipeline is the only solution for Pakistan’s energy crisis, the report said it becomes crucial to re-negotiate the import price of natural gas at earliest.
Pakistan has a combined power generation capacity of 24000 MW which it is unable to meet due to scarcity of natural gas supply.
Iran has already offered $500 million but Pakistan says it would need a total of $2 billion to complete its share . The issue of sanctions was raised by Prime Minister Nawaz Sharif when he met President Obama recently but officials did not confirm if the U.S. had softened its stand.
According to the 2013 agreement with Iran, Pakistan will import an amount of one billion cubic feet a day (BCFD). This would last for 20 years with an option to extend it for another five years. The report said Iran has already constructed more than 900 km (out of 1100 km) of the pipeline on its territory at a cost of $700 million. The report regretted that the country had not taken any substantial step to initiate the process of tapping the country’s shale gas potential except developing a framework. Pakistan ought to follow the Indian example here to maintain high economic growth, it said.
The agreement with Iran stipulates construction of Pakistan’s side of the pipeline by December 2014. If Pakistan fails to meet this deadline it will be liable to pay heavy daily penalties, which can run into a million dollars per day.
The report said if the Pakistani government is serious about this project, it must renegotiate the price and also the cut-off date penalties, for which provisions are present in the original agreement.
