Top economic managers for shelving IPI project

[Naveed Yaseen]

MUSHTAQ GHUMMAN
ISLAMABAD (March 25 2009): Pakistans top economic managers are reported to have suggested to the government to shelve the multibillion-dollar Iran-Pakistan-India (IPI) gas pipeline project, and instead explore domestic resources to meet the energy requirements, official sources told Business Recorder. The Bush-time White House had strongly resisted the IPI, and had exerted considerable pressure on both India and Pakistan to abandon the project.

The Bush administration was, instead, supporting the purchase of energy from the energy-rich Central Asian Republics, contiguous to Afghanistan, to the energy starved South Asian nations. However, geopolitical considerations, as well as continuing security issues in Afghanistan, continue to militate against that deal from materialising. It is not yet clear how the Obama White House views the IPI.

"Alternative options for exploring domestic resources, such as coal, wind, water, etc, should be considered instead of making heavy investment in this project," sources quoted Advisor to Prime Minister on Finance Shaukat Tarin as saying in the Economic Co-ordination Committee (ECC) meeting on March 19. He said that IPI project should be contrasted with the comparative advantages of projects that could be initiated with coal, hydel and/or wind resources, sources said.

The ECC meeting was told that the Iranian government had asked Pakistan that the Gas Sale Purchase Agreement (GSPA) for the supply of one billion cubic feet daily of natural gas should be signed during the current year, ending on March 20, 2009. Iran had also warned that after the passage of the deadline of March 20, 2009, it would be free to sell gas to other buyers. Rise in gas price by 10 percent was also anticipated, sources added.

Both Pakistan and Iran negotiated the agreement and, after thorough deliberations, Iranian side finally offered gas price which resulted in a crude oil parity of 80 percent--a small discount to the price of Iranian gas being sold to Turkey--,sources said.

They said that when the IPI proposal came under consideration in the meting, the ECC discussed its advantages and disadvantages in detail along with project cost. It was said that the gas would be used for power generation only, to replace use of furnace oil, and would be available in five years. Some ECC members were of the view that even though the cost of Iranian gas was high, this could be offset by a firm supply of gas in the future to the country through the pipeline.

"Apprehensions were also raised with regard to termination of the contract after construction of the pipeline, uncertainty of arbitration forum, further increase in gas price on a billion dollar investment and Pakistans recourse," sources quoted Petroleum Ministrys technical personnel as commenting on the project.

However, another opinion was that the imported gas remained the cheapest mode of meeting energy requirements. After discussion, it was felt in the ECC that as approval of such a vital project did not fall in its jurisdiction, it suggested that it should be placed before the Cabinet.

According to the summary moved to ECC, a copy of which was made available to this newspaper, the Petroleum Ministry had recommended purchasing gas specifically for power generation that would be supplied to power generation units through the public sector gas utility companies under the administrative control of Petroleum Ministry.

A separate tariff had been recommended for those industrial consumers who would use imported gas. Petroleum Ministry has been proposed to be the administrative ministry in this regard. The project envisages import of one billion cubic feet daily (bcfd) of natural gas, which is nearly 25 percent of Pakistans current gas production.

The project will take at least 4 years to complete, and be able to generate 5,000 megawatts (mw) power. According to an analysis, imported Iranian gas would result in annual saving of $1 billion over import of furnace oil, (at crude oil price of $50 per barrel).

Similarly, there would be an annual saving of $735 million, if equivalent quantity of LNG would be imported. The saving will increase in line with the hike in global crude oil price. The IPI project would have immense economic benefits for the people of Pakistan. It is pertinent to note that President Asif Ali Zardari also reportedly stated at a meeting last week that the new parliament of Iran must decide about gas price regarding the IPI gas pipeline project.

http://www.brecorder.com/index.php?id=11510