Iran-Pakistan gas pipeline

Federal Minister for Petroleum Dr Asim Hussain, in an interview to Voice of America, stated that "progress on the Iran-Pakistan gas pipeline project depends on international understanding." This statement finally lays to rest speculation that Pakistan would go ahead with the project irrespective of serious and repeatedly voiced US objections to the pipeline. US objections are an integral component of its over two-decade-long confrontational relationship with Iran which received a boost recently subsequent to allegations by President Obama that Iran conspired to assassinate the Saudi Ambassador on US soil - allegations that have been vigorously denied by the Iranian government. The question whether Pakistan should opt to go with the pipeline project in spite of US reservations or abandon the project has been analysed to death in this country. The anti-America lobby, quite large in this country, maintains that the energy crisis is not only holding the entire industrial output in this country hostage but is also responsible for serious social tensions that have manifested themselves in violent street protests in various parts of the country. Thus, there are both economic and political repercussions for the energy crisis. The Iran-Pakistan gas pipeline project has the capacity, they further argue, to meet not only existing but also future energy demand and thereby propel export-led growth. This rationale is not quite accurate. Our industrial output is unlikely to receive a boost to the extent envisaged in theory for the simple reason that the enabling environment for growth simply does not exist given the continuing law and order situation in the country as well as the heavy government reliance on domestic borrowing that continues to crowd out domestic private borrowing. Additionally, our industrial sector is largely consumer-based and faces not only quota restrictions in the West but is also subject to significant demand volatility given the ongoing global recession. Thus exports may not necessarily rise if energy demand of the sector is met. In this context, it is relevant to also note that trade deals between governments or trading blocs are a function of relations between countries and if for example the US decides to impose trade sanctions on Pakistan in case the IP project proceeds as proposed, in spite of US opposition, then our exports may well be compromised. The US can also refuse to disburse its pledged aid assistance - the US remains the single largest donor to Pakistan even today - and actively oppose assistance by multilateral agencies like the International Monetary Fund (IMF) and the World Bank at their boards. This would automatically imply that not only programme assistance (budgetary support) would be profoundly affected as at present given that Pakistan is not on a rigidly monitored IMF programme, but project assistance of which the people of this country are the main beneficiaries, would also be dealt a crushing blow. This, in turn, would lead the Pakistan economy with the 2011-12 budgetary reliance on external resources to the tune of 287 billion rupees (3.2 billion dollars) - a figure unlikely to materialise even without Pakistan not proceeding with the pipeline - to be further subjected to a burgeoning budget deficit with implications on each and every citizen of this country. Given that the treasury does not have the resources to clear the salary bill of loss-making state-owned entities, for example, Pakistan Railways, coupled with the government continuing to use these entities as recruitment centres the public would be subjected to even worse economic conditions than are prevalent today. To conclude, a cost-benefit analysis of proceeding with IP project or not would have to acknowledge that the cost is higher than the benefit. The US is actively promoting Turkmenistan-Afghanistan-Pakistan-India gas pipeline project. However, with Afghanistan's continuing civil war few would be likely to approve the project given the high risks of a pipeline blow-up. The solution to our energy needs lies in reforms of the sector, reforms that have been repeatedly identified by donors and include eliminating the circular debt, reducing transmission and distribution losses and bringing the price of different kinds of fuels at par with their energy output. Copyright Business Recorder, 2011