Pipeline problems

March 04,2018

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As has been the case from the beginning, Pakistan is in tricky territory with Iran over the lack of progress on the Iran-Pakistan gas pipeline project. The project has been unable to get off the ground for almost a decade now. Iran has finally intimated that it is ready to force Pakistan to pay a penalty cause of around $1.2 billion inked in the agreement. The pipeline project has long been heralded as a solution to Pakistan’s gas problems but there have always been concerns over whether Pakistan would be able to fulfill the commitment given Iran’s status as an international pariah. Despite the global sanctions against Iran, Pakistan has continued to maintain cordial relations with the country. Now, though, Pakistan has appeared to prioritise the Turkmenistan-Afghanistan-Pakistan-India (Tapi) gas pipeline project in recent weeks, which has rightfully triggered alarm bells in Iran. Iran may now choose to go for arbitration in The Hague where Pakistan stands little chance of avoiding paying the agreed upon fee for failing to implement the project. The financial cost and the fallout on our diplomatic relationship with Iran can be blamed on a severe lack of proper planning and policymaking on our side. It does not make sense to explore options in international trade that cost $1.2 billion if they are not fulfilled.

The pipeline project was due to start pumping gas in 2015 with a penalty cause of $1 million per day if the country failed to take gas from Iran. The fact that Pakistan needs the Iranian gas seems to be moot point for our policymakers. Iran had shown flexibility on the penalty clause if Pakistan managed to implement the project. But with rumours afloat that the project had effectively been given up due to international pressure, it seems Pakistan’s precarious situation may just force the country to take the financial hit. The trouble is that if any decision has been made regarding the future of the project, it should be communicated to Iran clearly and any arbitration process should be avoided. It is important to maintain a friendly diplomatic relationship with Iran in a context where Pakistan continues to be surrounded by hostile neighbors. The country did try to kick off a Gwadar-Nawabshah pipeline recently in the hope of merging it with the Iran-Pakistan pipeline but that now looks like a non-starter. In somewhat of an encouraging sign, diplomatic efforts appear to have been kickstarted to appease Iran. However, what Iran wants is a commitment to Pakistan actually building its own section of the pipeline. While the Foreign Office has insisted that the pipeline is still on, Pakistan will have to do a better job of getting Iran on board with whatever it actually plans to do on the IP pipeline.


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