IPI gas transportation deal

In an unprecedented breakthrough, Pakistan and India have successfully worked out the modalities of the IPI gas-sharing formula. Under the framework initialled at Islamabad on Friday, Pakistan and India will get an equal share from the 2.1 billion cubic feet (BCF) of gas which the IPI pipeline will provide on a daily basis during the first phase of the mega project, beginning in 2010-11.
The two countries have also agreed to complete the documentation on transportation tariff, transit fee, gas volume sharing, gas sales and purchase agreement, and the feasibility study of the project to be undertaken on the public-private partnership basis, before June this year. Iran will act as an observer in the whole process.
According to the details unveiled at a press briefing in Islamabad after India had demanded 3.2 billion cubic feet (BCF) of gas per day, while Pakistan had asked for 2.1 BCF a day for 30 years. However, under the framework firmed up at the two-day technical meeting, during the first phase both Pakistan and India will get an equal share ie 1.05 billion cubic feet (BCF) per day, while in the second phase they will get their remaining shares.
According to Pakistan's petroleum secretary, Pakistan will get the gas supply at Pak-Afghan border and the pipeline will pass through Balochistan. However, he refused to divulge the three options given by NESPAK regarding the pipeline's exact routes.
Similarly, Indian petroleum secretary M.S. Srinivasan refused to comment on the transportation cost of the project, saying only that different options were under consideration. However, he said the issue would be resolved in keeping with the international practices. Pakistan and India will now jointly appoint a consultant for conducting a feasibility study of the project, to be completed in six to nine months after which funding will be arranged.
The IPI pipeline project has remained stalled for so long that its estimated cost has escalated to $7.2 billion. According to one estimate, Pakistan is likely to get $200 to $500 million annually in transit fees as well. Conceived originally as the Iran-Pakistan pipeline project way back in 1993, it was later proposed to be extended to India.
According to available details, the 2,200 km pipeline, 707 kilometers of which will traverse Pakistani territory to the Pakistan-India border, will carry gas from Iran's Pars gas-field. As a greater part of the pipeline was scheduled to pass through the restive Balochistan, India has often voiced reservations about the security aspect of the project. Incidentally, the proposed plan for laying Turkmenistan-Afghanistan-Pakistan (TAP) pipeline could not materialise because of the grave security situation in Afghanistan.
Natural gas has meanwhile come to play a crucial role in Pakistan's industrial sector as most of the industries which were previously using fuel oil have gradually converted to natural gas. The major consumers include cement, power and fertiliser industries. (The growing crunch in gas availability has adversely impacted the production of these industries.)
The total production of natural gas during 1985-86 was 10,711 million cubic meters, with Sui and Mari gasfields contributing 67 percent and 20 percent respectively while Pakistan's natural gas reserves in 1970 were estimated to last about 100 years. But due to lack of new production facilities, coupled with increased gas consumption in different sectors of the economy, there has been a sharp decline in gas reserves.
Surprisingly, until 1973 there was no urgency to accelerate the oil and gas exploration and exploitation efforts, largely because of bureaucratic apathy and red-tapism. In fact, the gas utilisation policy in Pakistan has been a victim of adhocism as our energy bureaucracy has been very slow in responding positively, and most of the policies fashioned by it have been restrictive rather than liberalising.
With Pakistan's energy requirements currently growing at a rate of 10 to 12 percent per annum under a fast-growth trajectory, we will have to speed up exploration and exploitation of our indigenous gas resources as well. The transportation of hydrocarbons from energy-rich Iran to energy-starved South Asia, which the IPI envisages, is a highly propitious development for the whole region. There is a need to evolve additional synergies for the benefit of the whole region.
Now that the gas-sharing formula for IPI pipeline has been evolved, there is a need also to expedite implementation of the mega project so that the benefit to all the stakeholders starts accruing at the earliest. Secondly, Pakistan should work out foolproof security modalities for the pipeline. One way to ensure this could be an increase in Balochistan's share of gas royalty, and the prompt payment of the withheld royalty, if any. The goodwill such steps will generate, coupled with other political initiatives, can contribute significantly to the security of the mega pipeline project.