Academic journal article Journal of Political Studies

Iran-Pakistan Gas Pipeline: Cost-Benefit Analysis

Academic journal article Journal of Political Studies

Iran-Pakistan Gas Pipeline: Cost-Benefit Analysis

Article excerpt

Abstract

Iran-Pakistan (IP) Gas Pipeline is considered a controversial project in Pakistan. A large number of professionals believe that IP Gas Pipeline is an energy lifeline for Pakistan. In their view, due to common borders with Iran, financially and geographically it is the most viable option for this country. They argue that the project will be sustainable in terms of sufficient gas reserves of Iran, the overall cost of project is appropriate and price of gas is also reasonable. However, some other experts have totally different views and in the prevailing geopolitical and economic implications with regard to US and UN sanctions on Iran, they consider that this project is not feasible. In order to understand pros and cons of IP Gas Pipeline, this paper is an effort to critically evaluate the suitability of this project. It also attempts to explore possible answers to some important questions. For instance, what are the other available options for Pakistan to meet its energy requirements? Why Pakistan has opted for IP Gas pipeline in spite of US opposition? What would be the implications of US and UN sanctions on Iran? Is the cost-benefits analysis of the project in favour of Pakistan? What political and diplomatic measures should Pakistan undertake to counter negative implications of opting for IP Gas Pipeline?

Key Words: IP Gas pipeline, energy security, energy requirement, US and UN Sanctions against Iran,

Historical Background

The IP Gas Pipeline project has been under discussion between Iran and Pakistan since 1994. Iran signed a preliminary agreement with Pakistan in 1995. Later on, Iran suggested to extend the pipeline from Pakistan into India and signed in February 1999 a preliminary agreement with India as well. The project was termed as Iran-Pakistan-India (IPI) Gas Pipeline and many experts described it as a Peace and Prosperity Gas Pipeline. Pakistan, India and Iran held several meetings and agreed on price and other related issues.

In April 2008, Iran expressed interest in the People's Republic of China's participation in the project. In August 2010, Iran invited Bangladesh to join the project (Kabir, 2010). In 2008, India signed a nuclear deal with US and next year it withdrew from the project on the pretext of over pricing and security issues (Haider, 2010). However, in March 2010, India called on Pakistan and Iran for trilateral talks to be held in May 2010 in Tehran. In January 2010, the United States asked Pakistan to abandon the pipeline project. If cancelling the project, Pakistan would receive assistance from the United States for construction of a liquefied natural gas terminal and importing electricity from Tajikistan through Afghanistan's Wakhan Corridor (Farshadgohar, 2013).

However, Pakistan and Iran signed a final agreement on IP Gas Pipeline at a meeting held in Ankara on 16 March 2010. As per agreement each country was to lay its section of pipeline by the end of 2014 (Anwar, 2012). Government of Pakistan approved IP project deal with Iran on 30th January 2013. According to the bilateral agreement, if Islamabad does not complete its part of the project by end of 2014, it would have to pay a daily penalty of one million dollars to Iran until its completion (The Nation, 13th March 2013). In July 2011, Iran announced that it has completed construction of its section (Javaid, 2011). On 13th March 2012, Pakistan's ministry of finance announced that private investors were not showing enough interest and that the government might have to impose a tax on consumers, or seek government- to-government arrangements with Iran, China and Russia to build the pipeline (Farshadgohar, 2013).

The work on laying Pakistani section of the project was officially launched by the Presidents of both Pakistan and Iran on 11th March 2013. There is no doubt that Pakistan and Iran are committed to this project and have rejected US pressure not to undertake this project. It has been decided that Tadbir, the Iranian Company will construct the pipeline at the cost of Rs. …

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