CCoE approves work on the 80km segment of the IP Gas Pipeline inside Pakistan

ISLAMABAD: The Cabinet Committee on Energy (CCoE) on Friday granted its approval to start construction on an 80-kilometer (KM) pipeline from the Pak-Iran border to Gwadar as part of the IP Gas Pipeline Project.

As per details, a summary of the Petroleum Division regarding IP Gas Pipeline was taken up by the Cabinet Committee on Energy (CCoE) in its session of February 23, 2024.

The CCoE approved the recommendations of the Ministerial Oversight Committee (MOC) for the IP Project constituted by the Prime Minister in September 2023 whereby the Committee recommended to start work on the 80 km segment of the pipeline inside Pakistan i.e. from Pakistan border up till Gwadar in the first phase. The Project will be executed by Inter State Gas Systems (Pvt) Ltd.  and will be funded through Gas Infrastructure Development Cess. All the concerned divisions gave a positive nod to move ahead with the project to ensure gas supplies to the people of Pakistan, thereby addressing the increasing energy needs of the country.

According to petroleum division, this will not only boost energy security of Pakistan but would enhance confidence of the local industry who would be ensured with the enhanced gas supplies. This will also catalyze the economic activity in the province of Baluchistan and will contribute to the economic progress of Pakistan, said petroleum division.

The Iran-Pakistan pipeline, also known as Peace Pipeline, emerged from a plan dating as far back as 1994 and had originally included India. The $7.5 billion, 1,700-mile project would bring gas from the South Pars Gas Fields through Baluchistan (in western Pakistan) into India. Over the decades, however, the pipeline has faced multiple delays including India stepping back from the original plan in 2008.

One of the reasons for the delay have been consistent worries surrounding international sanctions on Iran. The problem is that hat if Pakistan does not start construction of the IP Gas Pipeline Project within the next three months it will have to face $ 18 billion worth penalty. Back in August 2023, Iran refused to accept Pakistan’s force majeure notice to halt construction of the multibillion-dollar Iran-Pakistan (IP) gas pipeline project and has instead granted two five-year extensions to meet the responsibilities of the IP Project.

Iran had previously given Pakistan a 180-day deadline until September 2024 to start completion of the pipe-laying work. Tehran warned Islamabad if its authorities do not accept the suggestion, Iran will move to the Paris-based International Arbitration for non-execution of the project and the Islamic Republic will seek an $18 billion penalty by lodging a complaint at the Paris-based institute.

Over the years Pakistan has postponed a decision to seek exemption from US sanctions while keeping in view the geopolitical situation in the region. Foreign legal firms have opined that Pakistan will face US sanctions if it starts construction of Iran-Pakistan (IP) Gas Pipeline Project.

the Inter-Governmental Framework Declaration of the Iran Pakistan Gas Pipeline Project was signed by the President of Pakistan and Iran on 24th May 2009 for supply of gas of 750 Million Cubic Feet per Day (MMCFD) for 25 years from South Pars gas field of Iran and delivery at Pak-Iran border, near Gwadar.

The project having a length of 1,150km within Iran and 781km within Pakistan was to be implemented by each country in their respective territories. The first gas flow was to start from 1st January 2015. Iran has completed construction of over 900km within Iran, while the remaining segment of 250 is yet to be constructed by Iran.

Considering the challenges faced by Pakistan, the Government of Iran has proposed to provide financing for the project as well as EPC contractor under the Government to Government Cooperation Agreement dated 1st December 2012. The cabinet approved the cooperation agreement on 30th January 2013. Subsequently, the Iranian government unilaterally withdrew from the Government Cooperation Agreement on 17th March 2014. Pakistan, therefore, served the Force Majeure and/or Excusing Event Notice under the IP-GSPA to National Iranian Oil Company (NIOC) on 29th March 2014 after seeking Prime Minister’s approval. Accordingly, the project activities have been on hold since then.

The GoP has maintained engagement with Iran at two levels; Technical Committee level and Ministerial level. So far, two meetings each at the Technical Committee level and Ministerial level have been held with Iran. During these meetings, Iran was informed about the steps being taken by Pakistan regarding the project implementation including its intent to file the Waiver Application and the prospective implications on the future course of action of the project if the Waiver Application is rejected.  While emphasising the urgent action by Pakistan, Iran stated that further extension of time under the French Civil Code would be subject to substantial progress by Pakistan on the project within next three months else Iran would be constrained to refer the matter to international arbitration under the GSPA. Both sides agreed to form a high-level committee to discuss all matters related to the project. Secretary Petroleum has been nominated from the Pakistan side for the High-Level Committee.