Failure to complete IP project by 2014: Pakistan will pay $1 million per day penalty?

As President Asif Ali Zardari and President Ahmedenejad are scheduled to inaugurate the Iran-Pakistan (IP) gas pipeline project on Monday (today), officials told Business Recorder in the event that the government of Pakistan failed to complete the IP gas pipeline project by the end of 2014 the country would have to pay a daily penalty of $1 million to Iran.
Reliable sources in the Ministry of Petroleum while quoting the penalty clause of the agreement said that both Pakistan and Iran were bound to complete the project by the end of 2014 and if any of the countries causes a delay due to any reason it would have to pay a daily penalty of $1 million to the other, which is extendable to $3 million per day.
Under the project, Pakistan will import 750 Million Cubic Feet Gas per Day (MMCFD) extendable to one Billion Cubic Feet Gas per Day (BCFD). The Balochistan government wants 250 MMCFD for Gwadar Port, therefore, Pakistani can obtain more gas from Iran if needed.
German-based consultant firm, ILF, National Engineering Services Pakistan (NESPAK) and Iranian construction company Tadbir are set to complete the project, which would cost $1.2 to $1.5 billion. The government of Iran has assured Pakistan of providing $500 million for construction of the pipeline on Pakistan''s side.
Furthermore the government has imposed Gas Infrastructure Development Cess (GIDC) on all gas consumers to finance the construction of imported gas projects like IP, Liquefied Natural Gas (LNG), Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline projects and other energy projects. The government so far has collected an estimated Rs 26 billion on account of GIDC during the first 7 months of the ongoing financial year 2012-13.
The gas price under the Iran-Pakistan (IP) pipeline project is now being offered at $10-$11 per million British thermal units (MMBTUs) - $5-6 per MMBTU higher than what was offered in 2007.
If IP project was completed, Pakistan could meet 80 percent of its own electricity needs through gas and hydel as gas under IP project alone would be sufficient to produce 4,500 megawatts of electricity.
IP project has been lingering since 1995, when Iran-Pakistan signed a memorandum of understating (MoU) to lay the pipeline.
Pakistan and Iran have held a series of talks on the project for nearly two decades but it was finalised only last week during Asif Zardari''s visit to Tehran. The construction of the pipeline would be completed within 15-18 months.
The Iran-Pakistan Working Group was formed in 2003 to take the project ahead. Pakistan told Iran that in case India refused to join the project, it would be pursued as an independent project; but in 2005, another MoU was signed which included India.
In 2007, India and Pakistan provisionally agreed to pay Iran US $5 per MMBTU. However, India subsequently withdrew over price and security concerns.
Under the accord, signed in June 2010, Iran will provide about 750 million cubic feet per day (MMCFD) of gas to Pakistan for 25 years. The deal can be extended by five years and volumes may rise to 30 million cubic meters a day.
On March 16, 2010 in Ankara (Turkey) the Iranian President Mahmoud Ahmadinejad and Pakistan''s President Asif Ali Zardari signed the Inter-Governmental Framework Declaration. According to the Gas Sale and Purchase Agreement, Pakistan would import natural gas with a provision to increase it to one billion cubic feet (BCFD) per day.
As per Petroleum Ministry officials, during the financial year of 2011-12 the government spent Rs 464 billion on power subsides and for the ongoing year it so far has spent Rs 225 billion, while from 2009-2013 total spending on power subsidies have reached at Rs 1.5 trillion level.