Political transition may delay Iran-Pakistan gas project

The multi-million-dollar Iran-Pakistan gas pipeline project is unlikely to be completed by the contractual deadline of December 2014 because of the political transition in Islamabad, officials have said.

The project was delayed because important approvals for beginning construction of the pipeline could not be obtained from the caretaker government, Petroleum Secretary Abid Saeed said.

This delay is expected to aggravate Pakistan’s energy crisis.

Work on the project inside Pakistan has been suspended because of the polls and transfer of power, he said.

"On certain issues related to the pipeline project, the Petroleum Ministry needs to get approval from the next government," he added.

Mobin Solat, Managing Director of Inter-State Gas Company, said Iran had completed 900 km of a 1,150-km pipeline from a gas field to Iranshehr.

Iran is working on another 250-km section from Iranshehr to the border at Gabd and about 60 per cent of the work had been completed.

Construction on the Pakistani side could not begin because the engineering, procurement and construction firms required sovereign guarantees for mobilising machinery and workforce, Solat said.

The Pakistan government needs to issue a sovereign guarantee to Iran’s Tadbir Energy, the engineering and construction contractor, and this has been delayed till the new elected government takes over, Saeed said.

Once the sovereign guarantee is issued, Tadbir Energy will begin project mobilisation.

The officials made the remarks while briefing the Standing Committee on Petroleum of the Senate or upper house of parliament Tuesday.

The Pakistan Muslim League-Nawaz, which won the May 11 polls, is expected to form government in the first week of June.

The gas pipeline project was initiated by the previous Pakistan People’s Party-led government in the face of considerable opposition from the United States.

The project envisages the import of 750 million cubic feet of natural gas a day by Pakistan for 25 years.

The officials told the Senate committee that Iran had indicated its willingness to do away with penalties on delays in building the pipeline.

Under a take or pay clause of the gas sales and purchase agreement between Pakistan and Iran, the failure on the part of any party to complete the pipeline will attract a daily penalty of one million dollars.

The agreement required first gas flows on December 31, 2014.

Saeed said several Pakistani companies had been shortlisted to construct the Pakistani section of the pipeline under the supervision of Tadbir Energy.

The price of the project was earlier estimated at $1.5 billion but the figure was later revised to $1.8 billion because of cost escalation and currency devaluation.

Iran will provide $500 million for services, pipeline and compressors while about one billion dollars will be raised through a "gas infrastructure development cess".       

The chairman of the Senate committee, Sardar Mohammad Yousaf, said it appeared that the cost of the project could further increase and the Petroleum Secretary agreed with this view.

The committee was also briefed on the $7.6 billion Turkmenistan-Afghanistan-Pakistan-India gas pipeline.

Officials told the panel that the steering committee on gas import projects had not yet formally approved the TAPI project.

Photograph: Reuters