Pakistan shelves multi-billion dollar gas pipeline project with Iran under pressure from US: Report

Pakistan has temporarily shelved the multi-billion dollar gas pipeline project to import cheap energy from neighbouring Iran, apparently under pressure from the US which has imposed sanctions against Tehran over its nuclear programme, according to a media report on Monday.

The development comes as Pakistan struggles to put its cash-strapped economy in order with the help of the International Monetary Fund, which agreed to provide USD 3 billion in loan.

The project was initially conceived as an India-Pakistan-Iran gas pipeline, but later, India left it and became a bilateral project between Pakistan and Iran.

The sanctions imposed by the US on Iran over its nuclear programme have deterred Pakistan from constructing the pipeline.

The Dawn newspaper reported that Pakistan had issued a notice of ‘Force Majeure and Excusing Event’ to Iran to suspend its contractual obligation on completion of the multi-billion-dollar Iran-Pakistan (IP) gas pipeline project because of external factors outside Islamabad’s control.

Pakistan has expressed its inability to pursue the project as long as US sanctions on Iran remain in place or Washington tacitly green-lights Islamabad to go ahead with the project that has been in cold storage for almost a decade despite acute energy shortages in the South Asian nation of 240 million people, the paper reported.

“Pakistan has issued a Force Majeure and Excusing Event notice to Iran under the Gas Sales and Purchase Agreement (GSPA), which resultantly suspends Pakistan’s obligations under the GSPA,” according to a written testimony Minister of State for Petroleum Musadik Malik has given to the National Assembly.

In a policy statement placed on the floor of the lower house of Parliament, the minister also put on record that Iran disputed the notice of force majeure and excusing event. The statement came in response to questions from lawmaker Muhammad Jamal-ud-Din from Muttahida Majlis-e-Amal party, who wanted to know if the government of Pakistan had a target completion date for the cross-border energy project and whether fines were due in case of delays and if other regional nations were enhancing trade relations despite UN sanctions.

“The Iran Pakistan Gas Pipeline Project is stalled due to international sanctions on Iran,” said Malik clarifying the project activities will begin once sanctions on Iran are removed and there is no threat that State Owned Entities (SOEs) would be hit by sanctions.

“Given that, no date and deadline can be given for the completion of the Iran-Pakistan Gas Pipeline Project,” he added.

At the same time, the petroleum minister also conceded that Pakistan’s notice of force majeure and excusing event and Iran disputing its validity could only be finally settled through international arbitration, should Iran take this matter to arbitration.

As a consequence, “the exact amount of penalty, if any, is subject to the outcome of the arbitration to be determined by the arbitrators”, he said.

Last week, Iranian Foreign Minister Hossein Amir Abdollahian, during his three-day visit to Pakistan, emphasised the need for the completion of the project, saying it would definitely serve the national interests of the two countries.

Tehran has been claiming to have completed its side of the 1,150-kilometre pipeline for which a groundbreaking ceremony was jointly conducted by then-presidents Asif Ali Zardari and Mahmoud Ahmadinejad on the Iranian site of Gabd, near Chabahar in March 2013 with then-estimated cost of USD 7.5 billion.

Pakistan had committed to complete its side of the project by January 2015. However, in February 2014, then petroleum minister Shahid Khaqan Abbasi told Parliament that the Iran-Pakistan project was “off the table” due to international sanctions.

Petroleum minister Musadik Malik explained in its latest statement that despite being fully committed to its contractual obligations under the GSPA, the Government of Pakistan had been unable to start construction of the pipeline due to US sanctions on Iran.

“The Government of Pakistan is engaged with the US authorities, through diplomatic channels, to seek exemption for the project. All necessary actions are being taken to construct the gas pipeline at the earliest,” he said.

Officials said Pakistan had requested Washington earlier this year for a way out to help overcome energy shortages but had not yet received any response. The Iranian pipeline was aimed to supply 750 million cubic feet per day (MMCFD) of gas, although it was vehemently opposed publicly and diplomatically by the US authorities, particularly when Pakistan and Iran signed framework agreements and GSPA in 2009 and 2010 respectively.

Malik also told the National Assembly that the indigenous gas supplies in Pakistan were depleting rapidly, whereas the demand for gas was increasing every year, thus widening the demand-supply gap, reported Dawn.