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May 13, 2019

IP gas pipeline: Iran asked to send experts before Eid for workable plan

Top Story

May 13, 2019

ISLAMABAD: In a new move, Pakistan has formally invited Iranian side in Islamabad before Eidul Fitr to discuss the workable implementation plan to materialise the much belated but vital IP gas pipeline project.

The Petroleum Division is all set to dispatch a letter to Iranian authorities today (Monday) asking to send its expert team to discuss with Pakistan counterparts on how to advance on the project in the presence of US sanctions. Both sides will try to find out a way to implement the project.

The Iranian side will be having paramount importance after the visit of Pakistan’s Prime Minister Imran Khan to Iran on April 21-22. In Iran, both the leaders discussed the IP project particularly the scenario that surfaced after Tehran issued a formal notice to Pakistan in the month of February 2019 onmoving the arbitration court for failure to implement the project in its side on time knowing the fact that Iran has laid down the pipeline in its territory. It is Pakistan that has failed to lay down 781-kilometre-long pipeline from the Iranian border to Nawabshah.

According to Inter State Gas System Managing Director Mobin Saulat, an emergent letter is being dispatched today (Monday) to Iran asking to send it legal and technical experts’ delegation to Islamabad for the meeting to deliberate the way forward for implementation of the project in the presence of US sanctions, which are reinforced under Trump administration.

Tehran formally gave thenotice to Islamabad for moving the arbitration court for not laying down the pipeline in Pakistan’s territory in stipulated time under IP gas line project and threatened to invoke the penalty clause of Gas Sales Purchase Agreement (GSPA).

The agreement was signed in 2009 for 25 years, but since then the project could not get the shape. Under GSPA, the project was to be commissioned on December 2014 and Pakistan was to have 750mmcfd gas in its system which was to be increased to 1 billion cubic feet per day and the additional 250mmcfd gas was to be injected for Gwadar needs. As many as 9-10 years have elapsed since the signing of the agreement and the construction period for pipeline in Pakistan territory, which comprises three years has been wasted. The Iranian authorities want Pakistan to mutually extend this period under GSPA. Iran has already asked Pakistan to review the price of gas under IP, but no talks on this issue have been held so far.

According to the top sources, Iran has conveyed to Pakistan leadership that it will take back the notice only if the government of Pakistan extends the construction period of pipeline of 781 kilometres from Iranian border to Nawabshah under signed GSPA (gas sales purchase agreement). After coming back to Pakistan, Prime Minister Imran Khan asked the Petroleum Division to stay in touch with authorities in Iran and resolve the issue.

Before the formal notice from Iran in February 2019, Pakistan’s legal firm had sent about 15 legal questions to the legal team in Iran asking in the presence of renewed US sanctions against Iran on its nuclear programme how it is possible to materialise the gas transactions. Iran was of the view that there are no sanctions on gas transactions, as it is exporting gas to some EU countries and importing gas from Turkmenistan. However, Pakistan legal firm had asked for mechanism under which EU and Turkmenistan are materialising the gas transactions.

However, instead of reply on the legal questionnaire, Iran in February 2019 sent a formal notice to Pakistan saying it is going to move arbitration court. Pakistan wants Iran to take back the notice as Pakistan tried its best for arranging funds required to lay down the pipeline in its territory, but in the presence of the US sanctions it failed to get financing from any international agency.

Under existing GSPA, Pakistan is bound to pay $1 million per day to Iran from January 1, 2015 under the penalty clause. In case Iran moves arbitration court, Pakistan will have to pay billions of dollars as penalty. This is the very reason that Pakistan is trying from pillar to post to persuade Iran to take back the notice.

Under the agreement with Iran, the project was to be implemented under segmented approach meaning by 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 $1 million per day as penalty.

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