PM hurries the petroleum division into kickstarting 14-year old gas pipeline project to avoid penalties

Immediate directives to energy and related divisions issued for making quick amends as the new chairman of CCOE

ISLAMABAD: Fourteen years after the signing of the initial agreement, and a month after the decision was already approved, the Prime Minister Shehbaz Sharif has strictly directed the petroleum division to immediately constitute an inter-ministerial committee, once again, for the implementation of the long-pending Iran-Pakistan Gas Pipeline Project.

According to sources, Prime Minister Shehbaz Sharif has also issued a series of directives and decisions mainly to enhance exploration, promote renewable energy, and streamlining governance within the sector.

And, the directives, outlined by the Prime Minister’s Office, cover a wide range of issues and emphasise the urgency of action to ensure timely implementation and progress monitoring.

The Iran-Pakistan gas pipeline project has long been a contentious subject between the two governments and often. Political parties. But what is the project, and what are the delays?

Background

The original plan for the Iran-Pakistan pipeline, also known as Peace Pipeline, can be dated as far back as 1994 and originally included India as well.

The $7.5 billion, 1,700-mile project, at that time was envisaged to bring gas from the South Pars Gas Fields through Balochistan (in Western Pakistan), all the way into India. Over the decades, however, the pipeline has faced multiple delays including India stepping back from the original plan in 2008.

Why the delay?

One of the major reasons for the delay have been consistent worries surrounding international sanctions on Iran. These sanctions targeted Iran’s nuclear program and limited its ability to engage in international trade and investment, including the construction of energy infrastructure projects like the gas pipeline.

Financing the construction of the pipeline has been a challenge due to the reluctance of international financial institutions and investors to participate in projects involving Iran, given the sanctions and geopolitical tensions in the region. Pakistan, lacking the cash to construct the pipeline at its end, has particularly faced difficulties in securing funding for its portion of the pipeline construction.

Not only that, the pipeline route also traverses through volatile regions in both Iran and Pakistan, raising security concerns and risks for construction crews and infrastructure. This not only complicates its risk assessment for financial purposes but also poses a hindrance in the construction process.

Why the urgency now?

The problem now is that 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 in penalty, should Iran press ahead with its arbitration bid.

The 2010 agreement stated that the project should have started supplying gas by January 2015. Iran completed over 900 km of the pipeline, however there’s still a 250 km segment left to finish. Pakistan on the other hand, does not have much to show for, in its progress. The reason? Lack of cash.

In December 2012, Iran proposed to finance the project on the Pakistan side and handle the engineering, procurement, and construction (EPC) through a government-to-government agreement. However, it backed out of this agreement in March 2014 due to its own financial difficulties.

As a result, Pakistan invoked force majeure (excusing events), which allowed them to halt project activities. In response, in February 2019, the National Iranian Oil Company (NIOC) accused Pakistan of breaching the sales and purchase agreement and the sovereign guarantee issued by Pakistan.

After negotiations, both countries agreed to extend the project timeline by five years under the French Civil Code. An agreement to amend the sales and purchase agreement was signed in September 2019. 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.

Seeing the five years previously granted were close to expiration, on December 21, 2023, the NIOC accused Pakistan’s Inter-State Gas Systems (ISGS) Ltd of breaching buyer’s warranties and invoked the sovereign guarantee issued by Pakistan once again. They gave ISGS 180 days to address the alleged breach and referred the matter to the Coordination Committee for resolution.

If Pakistan fails to complete the project, Iran can take the case to the International Court of Arbitration in Paris, potentially resulting in contractual liability estimated at $18 billion.

It is relevant to note that over the years Pakistan has postponed the construction to seek exemption from US sanctions. However, now that Pakistan is out of options to help it back out, it will inevitably face US sanctions if it starts construction of Iran-Pakistan (IP) Gas Pipeline Project. Foreign legal firm, Willkie Farr & Gallagher LLP has however informed that the sanctions would only be imposed on the constructing body, Inter-State Gas Systems (ISGS), an entity of the Petroleum division.

Experts have expressed this in the past, for Pakistan to obtain a waiver from the US on the aforementioned sanctions however such progress has not been made as of yet. The present government recognises the opportunity and is actively looking to work towards it, through lobbying and diplomatic consensus. The Energy minister, in an informal setting, reportedly stated the waiver citing political and techni reasons.

In February 2024, the ministry of energy, under the caretaker government, approved the recommendation to start work on an 80 km segment of the pipeline on the Gawadar side.

Injecting productivity in the CCoE; Shehbaz Sharif Style:

Last week the Prime Minister, instead of appointing the energy minister as the chairman of the Cabinet Committee on Energy (CCOE), chose to chair the committee himself. Since then there is an urgency in the energy and petroleum sector to amp up resources. Sources said that the Petroleum Division has been tasked with conducting an in-depth study and proposing exploration plans (including G2G), building upon previous benchmarking studies and the petroleum division is required to submit a report within three months.

They said the PM directed the Petroleum Division to hire a quality consultant for assisting in offshore gas exploration deals within two (02) months. They said the PM also directed the petroleum division to organise an event to roll out the Tight Gas Exploration plan within two weeks, making the Prime Minister himself the Chief Guest of the event.

They said the premier directed a committee, to be constituted by the Finance Division within two weeks, to propose amendments to the State-Owned Enterprises (SOE) Act, 2023, to enhance the competency of SOE boards. The PM further directed the formation of the aforementioned inter-ministerial committee to be formed immediately by the Petroleum Division to oversee the implementation of the Iran-Pakistan Gas Pipeline Project.

Sharing details of the directions given by the Prime Minister, the sources said that the Petroleum and Power Divisions are tasked with jointly developing a new plan to address circular debt flow and establishing a Project Management Unit (PMU) for effective monitoring.

Similarly, the PM directed that a signing ceremony for Refinery Upgrade Agreements under the Brownfield Refinery Policy is to be arranged by the petroleum division within two weeks, in the presence of the Prime Minister.

Likewise, the Power Division is directed to resolve net metering issues within one month to promote solarization.

Moreover, the PM directed the National Energy Efficiency and Conservation Authority (NEECA) and Power Division to submit a report on the status of energy conservation standards for home appliances to the Prime Minister within three days.

In addition, the PM directed petroleum, power divisions that weather conditions shall be factored-in for smooth execution of Ramadan demand supply plan of oil, gas/electricity.

It is also learnt from sources that Ministry of Science & Technology has been directed that plan for promotion of biomass fuel pellets shall be executed within one month in consultation with provinces. They said the PM directed that the power division, in consultation with the Board of Investment (BOI) and Industries & Production Division shall submit a proposal within one month to address the issue of surplus power capacity by developing industrial zones.

They said the PM directed the petroleum division to engage consultants to assess the magnitude of losses due to infrastructure degradation, gas theft, inefficiency and to help find remedies. Similarly, the PM directed that, Principal Staff Officer (PSO) to the PM who is the focal person from National Assembly (NA) constituencies shall be nominated within three days for distribution of Ramazan Package by SOEs out of their own resources.

Likewise, the sources added that the PM directed the petroleum division that third-party forensic analysis of Sui companies’ revenue requirements as determined by OGRA should be submitted within one month. He also directed petroleum division, power division and PSO to PM that presentations on Weighted Average Cost of Gas (WACOG), mineral sector, offshore gas, tight gas, unbundling of sui companies, and standards for energy efficiency for home appliances shall be made to the PM within one month.

The Prime Minister’s Office has also mandated weekly progress reports on the implementation of these decisions to ensure accountability and timely action.

Ahmad Ahmadani
Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected].

1 COMMENT

  1. “According to sources, Prime Minister Shehbaz Sharif has also issued a series of directives and decisions mainly to enhance exploration, promote renewable energy, and streamlining governance within the sector”

    – GREAT NEWS

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