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The IP gas pipeline project will immensely benefit both Iran and Pakistan. However, financial limitations, regional involvement and international pressures are rapidly mounting.
Energy shortage, particularly due to a paucity of gas, has become a persistent menace for Pakistan. Besides the terribly hit local industries, gas shortage is affecting even the common man’s life, with low gas pressure on stoves and room heaters, insufficient heating in home geysers, CNG load-shedding and much more.
In a situation so dire, relevant authorities have been struggling to find viable solutions, with the Iran-Pakistan (IP) gas pipeline deal emerging as a much-mooted option. Initially, the pipeline project included India – a 2700 km pipeline running from Iran’s South Pars fields in the Persian Gulf, going through Karachi and Multan in Pakistan, and finally to Delhi, India.
However, India withdrew from the project in 2009 on grounds of security and high gas pricing concerns. It was widely alleged that India’s withdrawal was prompted by US pressure to withdraw. India had signed a civilian nuclear deal with the US the previous year only and it is believed that this deal pressured India to comply with American foreign policy goals. It is not that Pakistan was spared of US pressure; the White House pressed both neighbors to refrain from signing any deal with Iran due to suspicions about the latter’s nuclear project, which is suspected of aiming at building nuclear weapons.
However, Pakistan has appeared resolute about the $7.6 billion IP pipeline project – slated for completion by 2014 – notwithstanding the disapproval of the superpower. The pipeline promises to supply approximately 20 percent of Pakistan’s gas demands that are anticipated to be raised even further.
Iran, on the other hand will benefit by securing a sound source of revenue, especially since US-led economic sanctions on its exports have dealt a hard blow to its economy. Iran has the second-largest gas reserves in the world and sustainability of supplies from the Muslim nation does not appear to be a tough task.
As for Pakistan, while this may sound like an ideal scenario for the energy-deprived country, there are more than just simple supply and demand dynamics influencing decisions in this regard. As mentioned earlier, US hesitation regarding the project is key, especially considering US influence over domestic policies in Pakistan. The main objection of the superpower is Iran’s alleged involvement in the development of nuclear weapons, and consequently, it wishes to avert any possible sources of revenues for the Muslim nation.
Linked closely with objections of the US are concerns of funding the project. Iran has constructed 900 km out of the 1100 km of the pipeline in the country at a cost of $700 million, while the approximately 1000 km in Pakistan are yet to be built. The pipeline itself is believed to cost the Pakistani government $1.2 billion and has become a cause for concern with local authorities.
The absence of US support means a key source of finances for Pakistan has been eliminated and even funding from US-backed institutions such as the IMF and World Bank are not likely to materialize. There certainly is potential for raising close to $300 million through a consortium of local banks, while local state-owned companies may provide as much as $200 million in equity.
But the real ray of hope has emerged from Pakistan’s influential neighbor, China, which has also shown interest in the gas pipeline deal, with hopes of the Asian giant assisting with a part of the financing for the project. Some Chinese companies have also been approached to help with the financing.
In fact, China’s growing clout in Pakistan is yet another bone of contention for the U.S. As for Iran, if China joins the project, and perhaps, if India shows renewed interest, Iran will be promised diplomatic immunity from three key nations in Asia.
As an alternate to IP, the U.S has been touting another gas pipeline deal known commonly as the TAPI pipeline project – Turkmenistan-Afghanistan-Pakistan-India. As the name implies, the project is supposed to supply gas from Turkmenistan via Afghanistan to Pakistan and India, bypassing US adversary Iran.
However, the fact that TAPI will have to pass through war-torn Afghanistan, as well as Balochistan in Pakistan – a province known for frequent insurgencies and dubious security situation – diminish the appeal of the project as an alternate. Besides, until the outcome of the US-Taliban war in Afghanistan is clear, the project’s implementation is quite unlikely to see the light of day.
Adding to the list of TAPI’s shortcomings are speculations over Turkmenistan’s ability to provide the amount of gas committed for the project. “Given that Turkmenistan has signed agreements with both Iran and China to increase existing supplies to these markets, and is also the largest supplier of natural gas to Russia’s Gazprom, questions have arisen over whether it will be able to meet its commitments for TAPI,” says an article in ‘The Diplomat’ – a Japan-based Asia-Pacific magazine.
All in all, despite Pakistan’s acute energy requirements, the IP deal is mired with significant geo-political as well as financial hurdles which could negatively impact the feasibility of the project. Going forward with the project despite the White House’s displeasure may have far-reaching and unpleasant consequences for Pakistan as the country has had to rely on the US for several economic, political and social predicaments at home. Yet, given the concerns regarding the TAPI project, the U.S option does not offer a viable alternate or respite.
Even if Pakistan puts a strong foot down and goes ahead with the project, financing can be quite tricky for a fiscally constrained country. The only way the IP can potentially develop is through support from China and if the US is convinced about allowing the project, given Pakistan’s dire energy requirements. Otherwise, Pakistan may be better off exploring strategies other than pipeline projects. 
Sijal Fawad is a student of Finance and Economics at the School of Oriental and African Studies, London, and a Research Analyst at the Business Recorder.
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