Published On: Mon, Aug 6th, 2018

Pakistan, Iran may start talks on IP gas project next month

Pakistan, Iran may start talks on IP gas project next month

Pakistan and Iran may initiate in September the much awaited parleys on how to advance on the IP gas line project which was earlier shelved by the previous Nawaz government in June 2016.

Iranian delegation wanted to come to Pakistan, but the caretaker government was of the view that any decision on the project will be the prerogative of the next elected government, a senior official at petroleum division said.

“In June 2016, Pakistan got shelved the IP gas line project, irking the authorities in Iran at that time and to this effect, the vibes that had emanated from Tehran indicated that it might move the arbitration court against Pakistan for not completing the project in its territory.”

“Now elections in Pakistan are over, and most likely the PTI headed government is going to take the charge.”
Imran Khan, the head of PTI that has won the elections in the country, is going to swear in as prime minister of Pakistan by August 9 and the whole process to shape up the cabinet will also be completed in the current month.

“Both sides would put their heads together to find out the way out how to proceed for implementation of the project in the presence of the US sanctions and hawkish attitude of the Trump administration. US President Trump is hell bent upon the deviating from the US-Iran nuclear deal earlier done during Obama regime. So under the new scenario, the top mandarins of both the countries would also work out new timelines for the project’s completion.”

Pakistan hopes Iran will, the official said, not move the arbitration court on IP gas line project, knowing the fact that in the presence of US sanctions, it was not possible to arrange the required funding for laying down the pipeline.

And if under the worst scenario, Tehran moves The Hague court, then Pakistan will be left with no option but to defend its case seeking the force majeure, the official argued.

“Yes, Pakistan has failed to lay down 781 kilometres pipeline in its territory, but on account of US sanctions imposed on Iran for its ambitious nuclear plan.

No development partner country, IFIs and donor agencies were ready to fund the project,” he argued further saying that Pakistan, in case of litigation, will seek force majeure under the clause of the agreement.

Pakistan and Iran have already, he said, agreed to open up and review the gas sales-purchase agreement (GSPA) inked between the two in 2009 following the reduction in the prices at which Pakistan is procuring the LNG from Qatar and is having the imported product through spot purchasing and the price of gas settled under TAPI gas line. Pakistan and Iran signed GSPA in 2009 under IP gas pipeline project in era of Pakistan People’s Party. Since then, the project could not get a shape.

As per the internal note of the petroleum division secretary sent to the prime minister, in February 2018 Iran had threatened to move the arbitration court against Pakistan for unilaterally shelving the IP gas line project invoking the penalty clause of the gas sales-purchase agreement (GSPA).

The internal note reads that Tehran has asked for payment of over $1.2bn as under the penalty clause from January 1, 2015, Pakistan is bound to pay penalty of $01mn per day if it fails to have intake of gas from Iran under the IP project.
In June 2016, Pakistan had shelved the IP gas line project in the wake of pressure of a leading gulf country. The decision had irked authorities in Iran at that time.

The project was to be implemented under segmented approach which means that Iran had to lay down the pipeline on its side and Pakistan had to build the pipeline in its territory. The project was to be completed by December 2014 and come on stream from January 1, 2015.

Under the penalty clause it was agreed by both sides that if Pakistan fails to have intake of Iranian gas from January 1, 2015, it will have to pay $01mn per day as penalty.

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