Govt to avoid $1.183 billion penalty by 2018

Iran-Pakistan pipeline project

Pakistan to renegotiate GSPA with Iran;
Iran indicates willingness to renegotiate gas prices
and show flexibility on penalty clause

ISLAMABAD:  The federal government has so far managed to avoid the $605 million penalty to be imposed by Iran as per the GSPA (gas sale purchase agreement) under the IP gas pipeline and will avert $1.183 billion by March 2018 which is close to the price of 700 kilometers Gwadar-Nawabshah pipeline that stands at $1.353 billion, a top official of the Ministry of Petroleum and Natural Resources told The News.

“Under an agreement with Iran, Pakistan was to pay $1 million a day to Iran from January 1, 2015 as penalty for failure in laying down the pipeline of 781 kilometers in its territory.” As per GSPA signed with Tehran, he said the IP gas pipeline was to come on stream by December 31, 2014 and under the penalty clause in case Pakistan fails by December 31, 2014 to lay down the pipeline from Pak-Iran border to Nawabshah, then the penalty clause would invoke automatically and Pakistan will have to pay $1 million a day to Iran. 

However, the ugly development of being penalized didn’t happen as the government successfully pitched the alternative project of Gwadar-Nawabshah pipeline which will be renamed as IP gas line once the sanctions imposed on Iran are no more. The Gwadar-Nawabshah pipeline will definitely be completed by March 2018. However, its first target of completion is December 2017.

Mobine Saulat, Managing Director of Inter-State Gas System, also confirmed saying that so far the government had avoided $605 million penalty which was due from December 31, 2014 and will avert $1.183 billion penalty by March 2018 when the LNG pipeline from Gwadar to Nawabshah gets operational.

In the current scenario, the relevant top mandarin said the petroleum ministry wants to extend the GSPA with penalty clause up to December 2018 and to this effect Iran is open to an amendment to the GSPA.

The ministry has written a letter to the Foreign Office seeking permission to re-negotiate GSPA with Iran and is waiting for the FO’s nod. Iran is also ready even to re-negotiate the price of gas as there is a clause in case the buyer country manages the import of piped gas at lower price from any other country, than Iran will match it. 

The price of gas to be imported from Turkmenistan through TAPI gas line has been finalized lower than the gas price of Iran. Pakistan factually got failed in the wake of inability to arrange the required finances for 781 kilometers pipeline on account of sanctions imposed on Tehran by the UN, the US and the EU countries for Iranian’s ambitious nuclear program. 

The Nawaz government then came up with the innovative idea of constructing the 700 kilometers Gwadar-Nawabshah pipeline with the same specifications of IP gas pipeline agreed with Iran to avert the imposition of penalty.

The government successfully prepared its force majore case which was pitched before the top authorities of Iran telling them that Pakistan had carved out a plan to lay down the 700 pipeline from Gwadar to Nawabshah with the diameter of 42 inches with the same specifications of IP gas line project agreed to with Iran.  

And when the sanctions get waived off, then the pipeline will be extended backward from Gwadar to Iran by 81 kilometers that is to be connected to the pipeline in the territory of Iran. The top mandarins also found that the pipeline Iranian authorities have constructed in their territory under umbrella of IP gas line is still away by 300 kilometers from the Pak-Iran border meaning that Iran had not so far done its own job. 

“The IP gas pipeline line under the agreement was to be built under a segmented approach,” the official explained. During the PPP regime, the inaugural ceremony heralding the initiation of the IP gas line project was held in Iran, but economic sanctions made Pakistan unable to arrange the finances required for laying down the pipeline its own jurisdiction and no company was ready to participate in the said project.

Though tension between the US and Iran has substantially eased out after the decision of Tehran to compromise its nuclear programme as was desired by developed economies, the sanctions on the proposed IP gas line are still there. 

The official said that Snap Back Clause in the sanctions is still there and apart from it curbs on transactions in dollars are also there.  Under the agreement with Iran, Pakistan is to intake 750 million cubic feet gas per day (mmcfd) from Iran which will later on increase up to 1 billion cubic feet gas per day.

Under the current scenario, the petroleum ministry wants to extend the GSPA with penalty clause up to December 2018 and to this effect Iran is open to the amendment in the GSPA.  The ministry has written a letter to the Foreign Office seeking permission to re-negotiate GSPA with Iran and is waiting for the nod.