President Asif Ali Zardari has said that let the new parliament of Iran decides about gas price regarding the Iran-Pakistan-India (IPI) gas pipeline project. Sources revealed to the Business Recorder on Thursday that in a high level meeting held in Presidency on Wednesday, President Zardari expressed dissatisfaction over the gas price to 80 percent of crude oil offered by Iran.
The Iranian government has conveyed to Pakistan that its parliament had approved the gas price offered to Pakistan. Iran warned that it would be free to commit supplies reserved for Pakistan to its other buyers if no agreement reached between the two countries during the current Iranian year, ending on March 20.
"Let the new parliament of Iran decide about the gas price offered to Pakistan as current gas price was higher," sources quoting the President as saying in a meeting. The sources said that the Petroleum Ministry had moved a summary to the Prime Minister, who had directed the ministry to place the matter before Economic Co-ordination Committee (ECC) of the Cabinet that failed to reach any decision on gas price here on Thursday due to observations of some ECC members. They raised concern over the high price of gas offered to Pakistan.
The ECC decided to send the matter of gas price to the Cabinet for approval. The ECC okayed rationalised gas import proposal, and advised the Petroleum Ministry to seek ratification and approval from the Cabinet before signing of gas sales and purchase agreement (GSPA) with Iran.
The sources said that the ECC was informed that Iran had conveyed to Pakistan that it was exporting gas to Turkey at formula, linking gas price to 85 percent of crude oil. Earlier, Iran agreed to link gas price to 78 percent of crude oil, but now it was demanding 80 percent of crude oil. Iran claimed that the said gas price was still lower as compared to the gas price being paid by Turkey to Iran.
It was informed that Pakistan had offered gas price of 70 percent of crude oil that Iran had turned down. Advisor to Prime Minister on Finance Shuakat Tarin, who chaired the meeting, expressed concern over the payment of gas price to Iran as it would be a burden on the national exchequer. The proposal was also considered to import 500 million cubic feet gas per day instead of one billion cubic feet gas per day for power generation purpose only.
The issue of setting up new thermal power plants came under the discussion. The Advisor to the Prime Minister on Finance strongly objected for setting up new thermal power plants to utilise Iranian gas. He said that option of consumption of imported Iranian gas, as energy mix should be worked out in the existing thermal power plants.
The ECC also directed to work out the possibilities of power generation through other resources like wind and coal resources. Members of the committee stressed the need for utilising wind and coal reserves for power generation. The sources said that if the two countries reached an agreement, Pakistan would have to pay 1.5 billion dollars annually for one billion cubic feet gas per day to Iran if the price remained at five dollars per million British Thermal Unit (mmbtu) based on 50 dollars per barrel crude oil price.
After the completion of the project, the consumers will have to pay 17.5 percent return on the assets also that will further escalate the cost of the gas price. The ECC was informed that in January 2007, Pakistan and Iran had agreed on a gas price formula with a crude oil parity of 45 percent.
However, in September 2008, Iran informed that its parliament had not approved the agreed gas price formula, which directed that price of gas exported to Pakistan should be equal to its other exports, namely to Turkey, and accordingly proposed a revised gas price formula to link gas price to 85 percent of crude oil. Later, Iran offered a revised gas price proposal to link it to 80 percent of crude oil, which Iran claims is at a slight discount to the price of gas being sold to Turkey.
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