Round The World

New Delhi, 2 June 2009

Iran-Pak Pipeline Deal

POOR ECONOMICS WITHOUT INDIA

By Monish Tourangbam

Research Scholar, School of International Studies, JNU

Iran and Pakistan have gone ahead and signed the long-stalled pipeline deal to transport gas from the Persian Gulf sans India. In doing so, Tehran and Islamabad have tried to put the ball in New Delhi’s court, by keeping open the option for India to join the project, which was initially fashioned as a trilateral venture.

Clearly, this overture by the two countries would provide ample food for thought for the incumbent Foreign Minister Krishna as the project is vital to India’s foreign policy calculations. The project termed as 'Peace Pipeline' has been inked by President Zardari and his Iranian counterpart Mahmoud Ahmedinejad in Tehran on the sidelines of the tripartite Iran-Pakistan-Afghanistan Summit on Afghanistan’s security.

The National Iranian Gas Export Company’s Managing Director and the CEO of Pakistan’s Inter-State Gas Systems (ISGS) put the finishing touches on the deal after two days of negotiations. The ISGS is a semi-autonomous body looking after Pakistan’s interests in international gas pipeline projects to import gas from Iran and Turkmenistan.

A Pakistani delegation led by Pakistan’s Federal Minister of Petroleum and Natural Resources Asim Hussain worked out the final details of the deal based on a new price formula suggested by Tehran and approved by Pakistan’s Cabinet on May 23 last. According to the deal, Iran would initially transfer 30 million cubic meters of gas per day to Pakistan but would eventually increase the gas transfer to 60 million cubic meters per day.

The two countries are expected to sign the formal agreement for the gas pipeline project, to be completed in five years, in a third country within the next few days. According to Pakistan’s Petroleum Ministry sources, the pipeline would enter Pakistan from its border near Gwader area to Nawabshah, which is the hub of gas pipelines in the country.

According to the original project, India was a vital part of the “peace pipeline” but various concerns made New Delhi hesitant. Primarily, the issues of commercial viability and pricing. Foreign Ministry mandarins argued that India could not sign the pipeline agreement until the issues of transit fee and tariff with Pakistan were sorted out on a bilateral basis. Notwithstanding, New Delhi continuing to maintain its commitment to the proposed trilateral venture.

Islamabad is seeking 49 cents per mBtu (million British thermal unit) as transit fee, while New Delhi has offered 15 cents ($60 million a year) for providing security and right of way to the pipeline. Earlier, India and Pakistan had narrowed down their differences on the transportation tariff. Islamabad wanted 70 cents per mBtu as wheeling charges but New Delhi offered no more than 55 cents ($220 million annually). The two sides have now agreed to base it on the actual cost of building and operating the 1,035-km pipeline in Pakistan.

Iran, Pakistan and India are to separately build the pipeline segments falling under their respective territories. The pipeline would transport 90 mcmd (million cubic meters per day) of gas, out of which 30 mcmd would be for internal consumption in Iran. The remaining was to be split equally between India and Pakistan.

Iran also plans to begin export of gas to Pakistan by end of 2013. Most of the 1,035-km section of pipeline in Pakistan was to connect local consumption centres and if India were to join the project, only a small pipeline section would be needed to extend it to the India-Pakistan border.

Apart from the economics of the project, the deteriorating India-Pakistan relationship has not helped matters either. Add to this the all-too inherent geo-political constraints for New Delhi when it comes to doing business with Islamabad.

The internal situation in Pakistan is not welcoming either for materialization of such an ambitious project with high stakes involved in terms of profitability and loss. The Pakistani economy and the domestic scenario do not have a semblance of stability, with the Government and the military largely busy in dealing with the over-arching influence of the Taliban.

Worse, post the Mumbai terrorist attacks Indo-Pak relations have taken a downward spiral and for New Delhi to do any meaningful business with Islamabad, the latter has to honestly assist India’s probe on the Mumbai attacks.

Moreover, the Washington connection cannot be ignored. The US, particularly the erstwhile Bush Administration had always made plain its displeasure to the trilateral pipeline project. Thus, it is not hard to discern that New Delhi does not want to disrupt the recent thaw in US-India relations by signing the deal that would provide a source of revenue to Tehran.

Further, the pipeline would also prove to be a source of income for Pakistan by way of transit fees and tariff, something New Delhi wants to avoid. But, in view of the deal signed between Iran and Pakistan and the trilateral summit (Iran-Pakistan-Afghanistan) that Pakistan and Afghanistan --- two countries where the US has hugely invested --- attended in Tehran, the new Obama Administration needs to come out soon with its policy on the pipeline project.

In fact, the Pakistani Dawn newspaper citing official sources reported, “the change of stance from the Pakistani Government and the pace of developments at the project suggest that the strong US opposition has softened.”

The deal is being seen more as a tactic to put pressure on India as the project's financial viability remains doubtful without New Delhi's participation. The real market for Iranian gas lies in India, with its expanding population and growing energy consumption. Without India, Pakistan would be deprived of the transit fee.

Significantly, the influence of the “Red Dragon” (read China) is relevant to this issue as well. After signing the deal, Iran and Pakistan kept open the choice for India to join the project. Agency reports quoted officials of both countries stating that “India or any other country can join later”. The word “other’, observers say, signifies pressure tactics as it hints at China.

Pakistan has been aiming to rope in China for a long time, with former Pak President Pervez Musharraf making the offer in a speech at the Tsinghua University during his last Beijing tour. Even if China were to enter the project and present Pakistan with a good amount of transit fees, constructing and maintaining a trans-Himalayan pipeline to Western China would be an uphill task, and not as enticing as the easily  accessible an equally profitable market like India.

In the ultimate, the deal assumes prominence for both Ahmadinejad and Zardari. By signing the deal with Iran and bypassing India could increase Zardari’s credibility in Pakistan and divert attention from the explosive domestic scene. With the upcoming Iranian elections, Ahmadinejad might want to sell the deal as a show of Iran’s developing self-reliance and defiance of the West, and thus overshadow criticism over his economic policies.

Thus, as matters stand now, it seems logical for New Delhi to be apprehensive of entering the project in the absence of any meaningful dialogue with Pakistan, which is passing through one of its most tumultuous times. ---- INFA

(Copyright India News & Feature Alliance)