With New Delhi boycotting talks on Iran-Pakistan-India pipeline over pricing and security concerns, Iran and Pakistan on Sunday signed government guarantees - the last of a series of agreements - that commits the Islamic republic to supply its eastern neighbour with natural gas from 2014.
"We have kept open the option of India joining the project (at a later date). We will welcome India (in the project)," Muhammad Ejaz Chaudhry, Additional Secretary in Pakistan's Ministry of Petroleum and Natural Resources, said from Islamabad.
India fears terrorists may hold the pipeline hostage to their demands and even cut supplies by blowing it to hurt the interest of world's second fastest growing economy. Also, it is upset with frequent changes in pricing of gas by Iran and has boycotted talks for almost three years now.
New Delhi has now proposed talks with Iran to sort out impediments but the two are yet to agree on mutually acceptable dates.
"We yesterday signed government guarantees, letters of comfort and condition precedents for the project," Chaudhry said.
Pakistan had in July last year signed a gas sale and purchase agreement and in March signed among other pacts a gas transportation agreement (GTA). The GTA, which has been notarised in Paris, provides for internationally acceptable transit arrangement for gas to be supplied to India.
"We will stand guarantee for safe delivery of gas (at Pakistan-India border)," Chaudhry said.
Of the 1,035-km length of the pipeline in Pakistan, only 100-odd km would be exclusively for carrying gas to India while the rest would be transporting fuel for both Pakistan and India, he said, pointing that it was in Pakistan's own interest to protect the pipeline.
Iran will supply 21.5 million cubic meters a day of gas to Pakistan for 25 years. The deal can be extended by five years and the volume may be increased to 30 million cubic meters on Pakistan's request.
The Persian Gulf nation has so far constructed 907-km of the pipeline from the industrial hub Assaluyeh in southern Iran. It will now start the second leg of the pipeline toward Pakistan, about 300-km in length, that will carry natural gas from Iran's South Pars field.
South Pars, which extends from Qatar's North Field, forms the largest known gas deposit in the world.
Chaudhry said Pakistan will now start work on the pipeline from Iran-Pakistan border to its consumption centres.
"We expect first gas (from Iran) to flow by December 2014," he said.
The estimated cost of the project was USD 1.2 billion inside Pakistan from its point of entry in Balochistan up to Nawabshah, the hub of the country’s gas pipeline system.
On the other side, Iran will start building the next 300-km leg of the pipeline from the southeastern city of Iranshahr to the Pakistani border, through the Iranian port of Chabahar.
Pakistan plans to use the gas purchased from Iran for its power sector, he said.
Iran, in the GSPA with Pakistan, has committed to sell gas either from one of the phases of the giant South Pars offshore field or divert fuel it may import from one of its gas-rich neighbouring country.
New Delhi has so far downplayed the agreements, officially only saying that it had price and security concerns which need to be addressed before it can join the project.
India wants to buy gas in its liquid form (LNG) that can be shipped or through a deep-sea pipeline avoiding the Pakistani territory totally.
It had major disagreements with Iran on pricing and project structure of the IPI pipeline when it broke out of talks in 2007. Tehran has been insisting that ownership of gas would be transferred at Iran-Pakistan border while New Delhi wants it to be Pakistan-India border thereby making Iran explicitly responsible for safe delivery of gas.
New Delhi is also upset with Iran's frequent changes in gas price. Iran had originally priced its gas at USD 3.2 per mBtu but later in 2007 revised the rates to USD 4.93 per mBtu at USD 60 a barrel crude oil prices, which was accepted by India.
Last year, it again revised it and according to the new pricing formula, the fuel will cost New Delhi USD 8.3 at USD 60 per barrel oil price at Iran-Pakistan border.
Added to this would be a minimum of USD 1.1-1.2 per mBtu towards transportation cost and transit fee that India would have to pay for wheeling the gas through Pakistan, making it the most expensive fuel in the country.
Also, Iran was not willing to commit to a supply-or-pay regime wherein it would have been held accountable for non-delivery of gas at Indian border. It, however, wants New Delhi to commit to a strict take-or-pay clause wherein India would have to pay even if it does not take deliveries.
All it now says is that if Pakistan were to disrupt supplies to India, Iran will make a proportionate cut in the quantities to be delivered to Islamabad.