An Ob­sta­cle-in­fested Pipe­line

The IP gas pipe­line project will im­mensely ben­e­fit both Iran and Pak­istan. How­ever, fi­nan­cial lim­i­ta­tions, re­gional in­volve­ment and in­ter­na­tional pres­sures are rapidly mount­ing.

Southasia - - Cover Story - By Si­jal Fawad

En­ergy short­age, par­tic­u­larly due to a paucity of gas, has be­come a per­sis­tent men­ace for Pak­istan. Be­sides the ter­ri­bly hit lo­cal in­dus­tries, gas short­age is af­fect­ing even the com­mon man’s life, with low gas pres­sure on stoves and room heaters, in­suf­fi­cient heat­ing in home gey­sers, CNG load- shed­ding and much more.

In a sit­u­a­tion so dire, rel­e­vant au­thor­i­ties have been strug­gling to find vi­able so­lu­tions, with the Iran- Pak­istan ( IP) gas pipe­line deal emerg­ing as a much- mooted op­tion. Ini­tially, the pipe­line project in­cluded In­dia – a 2700 km pipe­line run­ning from Iran’s South Pars fields in the Per­sian Gulf, go­ing through Karachi and Mul­tan in Pak­istan, and fi­nally to Delhi, In­dia.

How­ever, In­dia with­drew from the project in 2009 on grounds of se­cu­rity and high gas pric­ing con­cerns. It was widely al­leged that In­dia’s with­drawal was prompted by US pres­sure to with­draw. In­dia

had signed a civil­ian nu­clear deal with the US the pre­vi­ous year only and it is be­lieved that this deal pres­sured In­dia to com­ply with Amer­i­can for­eign pol­icy goals. It is not that Pak­istan was spared of US pres­sure; the White House pressed both neigh­bors to re­frain from sign­ing any deal with Iran due to sus­pi­cions about the lat­ter’s nu­clear project, which is sus­pected of aim­ing at build­ing nu­clear weapons.

How­ever, Pak­istan has ap­peared res­o­lute about the $ 7.6 bil­lion IP pipe­line project – slated for com­ple­tion by 2014 – not­with­stand­ing the dis­ap­proval of the su­per­power. The pipe­line prom­ises to sup­ply ap­prox­i­mately 20 per­cent of Pak­istan’s gas de­mands that are an­tic­i­pated to be raised even fur­ther.

Iran, on the other hand will ben­e­fit by se­cur­ing a sound source of rev­enue, es­pe­cially since US- led eco­nomic sanc­tions on its ex­ports have dealt a hard blow to its econ­omy. Iran has the sec­ond- largest gas re­serves in the world and sus­tain­abil­ity of sup­plies from the Mus­lim na­tion does not ap­pear to be a tough task.

As for Pak­istan, while this may sound like an ideal sce­nario for the en­ergy- de­prived coun­try, there are more than just sim­ple sup­ply and de­mand dy­nam­ics in­flu­enc­ing de- ci­sions in this re­gard. As men­tioned ear­lier, US hes­i­ta­tion re­gard­ing the project is key, es­pe­cially con­sid­er­ing US in­flu­ence over do­mes­tic poli­cies in Pak­istan. The main ob­jec­tion of the su­per­power is Iran’s al­leged in­volve­ment in the devel- op­ment of nu­clear weapons, and con­se­quently, it wishes to avert any pos­si­ble sources of rev­enues for the Mus­lim na­tion.

Linked closely with ob­jec­tions of the US are con­cerns of fund­ing the project. Iran has con­structed 900 km out of the 1100 km of the pipe­line in the coun­try at a cost of $ 700 mil­lion, while the ap­prox­i­mately 1000 km in Pak­istan are yet to be

built. The pipe­line it­self is be­lieved to cost the Pak­istani gov­ern­ment $ 1.2 bil­lion and has be­come a cause for con­cern with lo­cal au­thor­i­ties.

The ab­sence of US sup­port means a key source of fi­nances for Pak­istan has been elim­i­nated and even fund­ing from US- backed in­sti­tu­tions such as the IMF and World Bank are not likely to ma­te­ri­al­ize. There cer­tainly is po­ten­tial for rais­ing close to $ 300 mil­lion through a con­sor­tium of lo­cal banks, while lo­cal state- owned com­pa­nies may pro­vide as much as $ 200 mil­lion in eq­uity.

But the real ray of hope has emerged from Pak­istan’s in­fluen-

As for Iran, if China joins the project, and per­haps, if In­dia shows re­newed in­ter­est, Iran will be promised diplo­matic im­mu­nity from three key na­tions in Asia.

tial neigh­bor, China, which has also shown in­ter­est in the gas pipe­line deal, with hopes of the Asian gi­ant as­sist­ing with a part of the fi­nanc­ing for the project. Some Chi­nese com­pa­nies have also been ap­proached to help with the fi­nanc­ing.

In fact, China’s grow­ing clout in Pak­istan is yet an­other bone of con­tention for the U. S. As for Iran, if China joins the project, and per­haps, if In­dia shows re­newed in­ter­est, Iran will be promised dip- lo­matic im­mu­nity from three key na­tions in Asia.

As an al­ter­nate to IP, the U. S has been tout­ing an­other gas pipe­line deal known com­monly as the TAPI pipe­line project – Turk­menistan- Afghanistan- Pak­istan- In­dia. As the name im­plies, the project is sup­posed to sup­ply gas from Turk­menistan via Afghanistan to Pak­istan and In­dia, by­pass­ing US ad­ver­sary Iran.

How­ever, the fact that TAPI will have to pass through war- torn Afghanistan, as well as Balochis­tan in Pak­istan – a prov­ince known for fre­quent in­sur­gen­cies and du­bi­ous se­cu­rity sit­u­a­tion – di­min­ish the ap­peal of the project as an al­ter­nate. Be­sides, un­til the out­come of the US- Tal­iban war in Afghanistan is clear, the project’s im­ple­men­ta­tion is quite un­likely to see the light of day.

Adding to the list of TAPI’S short­com­ings are spec­u­la­tions over Turk­menistan’s abil­ity to pro­vide the amount of gas com­mit­ted for the project. “Given that Turk­menistan has signed agree­ments with both Iran and China to in­crease ex­ist­ing sup­plies to these mar­kets, and is also the largest sup­plier of nat­u­ral gas to Rus­sia’s Gazprom, ques­tions have arisen over whether it will be able to meet its com­mit­ments for TAPI,” says an ar­ti­cle in ‘ The Diplo­mat’ – a Ja­pan- based Asia- Pa­cific mag­a­zine.

All in all, de­spite Pak­istan’s acute en­ergy re­quire­ments, the IP deal is mired with sig­nif­i­cant geo-po­lit­i­cal as well as fi­nan­cial hur­dles which could neg­a­tively im­pact the fea­si­bil­ity of the project. Go­ing for­ward with the project de­spite the White House’s dis­plea­sure may have far­reach­ing and un­pleas­ant con­se­quences for Pak­istan as the coun­try has had to rely on the US for sev­eral eco­nomic, po­lit­i­cal and so­cial predica­ments at home. Yet, given the con­cerns re­gard­ing the TAPI project, the U.S op­tion does not of­fer a vi­able al­ter­nate or respite.

Even if Pak­istan puts a strong foot down and goes ahead with the project, fi­nanc­ing can be quite tricky for a fis­cally con­strained coun­try. The only way the IP can po­ten­tially de­velop is through sup­port from China and if the US is con­vinced about al­low­ing the project, given Pak­istan’s dire en­ergy re­quire­ments. Oth­er­wise, Pak­istan may be bet­ter off ex­plor­ing strate­gies other than pipe­line projects.

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