New Economic Allies?


Written by Mohiuddin Aazim • Cover Stories • January 2012

The successful completion of the Iran-Pakistan gas pipeline project could trigger future areas of cooperation between regional countries.

An energy crisis continues to hinder economic progress in Pakistan. In the scorching summers, available electricity meets only 60 per cent of the country’s needs and in the chilling winters, the same becomes true for gas supply.

Lack of domestic and foreign funding in energy infrastructure over the years has created a precarious situation and has left us with few options to overcome it. Pakistan has seen fiscal constraints paralyze the country due to its engagement in the war-on-terror. Sheer mismanagement of public sector funding in huge energy projects has dealt a severe blow to an already struggling industry. Foreign funds are also difficult to secure under present circumstances - especially large amounts that are required for gigantic energy supply projects.

The Iran-Pakistan gas pipeline is an answer to the problem. However, initially a part of the project, India is so far out of the loop, with only Pakistan and Iran proceeding ahead with the proposal to lay a gas pipeline between the two countries. Petroleum Minister, Dr. Asim Hussain says that the survey for laying a gas pipeline on Pakistani soil has been completed and the country would soon begin the work.

Although the US is trying to dissuade Pakistan from undertaking this project and is offering financial and technical help for an alternative Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline project, Pakistani authorities seem to have decided to work on both the projects simultaneously.

As for the Iran-Pakistan gas pipeline, the advantages are obvious and are likely to come in much sooner than in the case of TAPI. Thousands of kilometres long, the Iran-Pakistan gas pipeline will benefit Pakistan’s economy the moment the development of the pipeline starts: it would create thousands of jobs and prompt enhanced activity in land development, cement, construction and allied industries.

While the actual supply of gas from Iran to Pakistan would take a few years, it would be a secure and sustained source of energy supply, badly needed for moving the wheels of the energy sector in Pakistan.

The post-recession 2008-09 change in Pakistan’s direction of external trade is obvious. Pakistan’s exports to emerging markets in Asia have grown rapidly over the last three years. Europe remains at the brink of a double-dip recession and America is still struggling to shrug off the ill effects of the financial crisis-cum-recession of 2008-09. In such a scenario, Pakistan needs to maintain and sustain the current trends in its external trade. Iran being a next-door neighbor is bound to emerge as an important trading partner for Pakistan in the years to come. Connecting the two countries with a gas pipeline would help both in maintaining their look-toward-Asia policy in trading and investment.

Iran is eager to go ahead with the proposed gas pipeline project as soon as possible because policy makers there know that in case they decide to build nuclear weapons, the country would attract much harsher sanctions from the West in particular and from the rest of the world in general. The country hopes that in that case, neighboring countries like Pakistan and Russia could be of some help in terms of keeping trade and investment flows open even if it means manipulating the sanctions.

For the Pakistani business community, Iran is as important in trading and investment as is India. Pakistani businessmen know, however, that developing normal trade and investment relations with India will take much longer than the time required to focus on the growth of a Pak-Iran business relationship.

“If the Pak-Iran gas pipeline becomes a success the two countries can also think about a similar project in the oil sector. Iran being a big supplier of fuel oil would naturally be interested in exporting oil to Pakistan either through a pipeline or in the beginning through oil tankers,” a senior official of the Ministry of Petroleum told SouthAsia.

More importantly, the gas pipeline project can also mark the launch of an energy corridor in this part of Asia - similar to the one that is being established in the Gulf region. “That explains why Pakistan is interested in both the Pak-Iran gas pipeline as well as TAPI.”

While Pakistan’s external trade flows have changed course following post-recession developments and have become more Asia-centric, the same may happen to foreign investment if the Eurozone experiences a double-dip recession and if America remains entangled with its complex financial sector problems and fiscal woes.

“Countries like China, India, Russia, Turkey, Iran, Kazakhstan, Malaysia, Hong Kong, Singapore and Thailand would be our major foreign investors in the future,” a senior official at the Board of Investment told SouthAsia. “Barring India (in which case inflow of investment may take a longer time) all other countries have already entered into a number of investment deals with us. If the Iran-Pakistan gas pipeline becomes a success story it would boost the confidence of Asian investors in Pakistan’s economy.” Malaysia has already offered to set up a 3000MW power plant in Iran to supply electricity to Pakistan.

Last but not the least, the Iran-Pakistan gas pipeline project would have a very favorable impact on rural development in both countries. Whenever a large project is set up, far from the cities, it generates a lot of activity not only before and during its completion but also after its successful commissioning. Larger benefits would accrue when private investors of both countries, emboldened by this project, would think of entering into a number of joint ventures. From oil refining, mineral extraction and precious stone cutting to cement production, livestock rearing, agricultural development, food processing, carpet weaving, shipping, ports and light to heavy engineering; there is a long list of sectors wherein the two countries could share their expertise with each other and come up with mutually beneficial ventures.