CCoE okays 80-km pipeline from Gwadar to Iran border

ISLAMABAD: At last, the Cabinet Committee on Energy (CCoE) that met here on Friday approved the government plan to construct the 80km segment of pipeline inside Pakistan under the much-delayed Iran-Pakistan (IP) gas line project in the first phase.

The first part of the pipeline from Gwadar to a point where Iran has already laid down its part of the pipeline from the gas field will show how serious authorities in Islamabad are about the mega project. And this is how the authorities in Pakistan will be able to keep Iran away from moving the International Court of Arbitration and $18 billion penalty.

“The Finance Ministry will arrange the required funding from the board of GIDC (gas infrastructure development cess). According to estimates, about $158 million (Rs45 billion) would cost to construct the 80km segment of the pipeline. And in the current financial year, Rs2.5 billion would be provided for civic works. The remaining funds amounting to Rs 42.5 billion may be considered in the next financial year 2024-25 on approval of the GIDC Board. The total length of the pipeline in Pakistan’s territory would stand at 781 kilometres from the Iranian border to Nawab Shah.

The Special Investment Facilitation Council (SIFC) also approved the plan to first lay down the 81km line as part of the total 781km pipeline that will in later stages be connected to Nawab Shah the national grid and the Petroleum Division. As per the plan, officials said, the 80km pipeline will connect Gwadar with the IP gas line project and the gas will be used in Gwadar initially. “If the US does not invoke any kind of sanctions, the pipeline will be extended from Gwadar to Nawab Shah. If Washington imposes sanctions, Pakistan will have valid reasons to abandon the project and this is how it would escape the $18 billion penalty and arbitration court proceedings.”

However, Iran has already extended the 180-day deadline till September 2024 to Pakistan for showing seriousness towards the much-delayed IP gas line project and if Islamabad authorities fail to positively respond, Tehran will move the Paris-based International Arbitration, seeking a penalty of $18 billion. “However, Iran also offered at the same time its legal and technical expertise to Pakistan to jointly work out a win-win strategy before the end of 180 days deadline under which the project is materialized in a way that arbitration could be averted and Pakistan remains safe from any impact of the US sanctions imposed on Iran.

An Iranian technical and legal experts team was earlier scheduled to arrive in Pakistan on January 21-24 for talks to find a mid-way solution for materializing the much-delayed gas line project but it could not arrive because of the tension between the two countries emerged on account of a sudden attack by Iran inside Pakistani territory in violation of international laws and then Pakistan responded with the same fashion. After that, both the countries had severed diplomatic ties for some days. However, sanity prevailed soon on both sides and both the neighboring states announced restoring diplomatic ties. Now normalcy has been attained.

Under the SIFC directive, the Petroleum Division has been asked to take the MoFA (ministry of foreign affairs) on board to follow up on the proposed visit of the Iranian delegation to Pakistan. Coordination committees from both sides would find out a doable strategy to materialize the project. The Iranian team would comprise experts in international relations laws, legal frameworks, and gas engineers.

The project has been facing delays since 2014. Pakistan received the latest notice almost 25 days ago.

“Iran earlier asked Pakistan in Nov-Dec 2022 in its second notice to construct a portion of the Iran-Pakistan gas line project in its territory till Feb-March 2024 or be ready to pay a penalty of $18 billion. Before that, Tehran sent a notice to Islamabad in Feb 2019 to move an arbitration court for not laying down the pipeline in Pakistan’s territory in the stipulated period under the IP gas line project. It threatened to invoke the penalty clause of the Gas Sales Purchase Agreement (GSPA). The GSPA was signed in 2009 for 25 years but the project could not take shape.

Pakistan has been arguing that it could not materialize the project in its territory because of US sanctions imposed on Iran, a view to which authorities in Tehran have never subscribed, saying that US sanctions are not justified. Iraq and Turkey have been using gas from Iran for a long time as they have managed waivers on US sanctions. Likewise, India also got a waiver for importing petroleum products for its economy. Pakistan has, meanwhile, tried to contact US authorities many times to know whether the US curbs on Iran would have any impact on Pakistan if it becomes part of the IP gas line but has not received any response from Washington.

The GSPA (Gas Sales Purchase Agreement) was signed under the French law and the Paris-based Arbitration Court is the forum to decide disputes that arise between the two countries. The French arbitration court does not recognize US sanctions.

The CCoE endorsed the recommendations of the Ministerial Oversight Committee for the IP Project, established by the prime minister in September 2023. The committee advised initiating work on the initial 80km segment of the pipeline. The IP pipeline, also known as the Peace Pipeline, was initially proposed in 1994 and involved India. However, India withdrew from the agreement in 2008, leading to subsequent setbacks. Persistent concerns over international sanctions on Iran have further delayed the project.

Pakistan faces a critical deadline, as failure to commence construction in next three months could result in an $18 billion penalty.

Iran rejected Pakistan’s force majeure notice in August 2023 and instead granted two five-year extensions to fulfill the project obligations.