Although it was in 1993 that the first agreement on Iran-Pakistan-India (IPI) gas pipeline project was signed, and Pakistan and Iran signed another agreement to prepare the feasibility report five years ago, progress has remained too slow due to one reason or another. First, of course, was the distrust between Pakistan and India that acted as a serious hindrance.
Then tensions between the US and Iran heated up, and the former pressured both its friends, Pakistan and India, from going ahead with the project, citing a domestic law against doing business with any party having economic ties with Tehran. For a time India seemed to be succumbing to that pressure, but then it came around as Pakistan continued to express its resolve to go ahead with the project with or without its initial partner.
And, of course, New Delhi badly needs energy for its fast growing economy. Having grappled with political problems, for some time the three parties have been haggling over the pricing issue. India threatened to pull out of the project nearly two years ago, saying the Iranian price proposal of about $4 MBTU which, with the addition of transportation and transit costs, would go up to $4.50 per MBTU, was far higher than the commercial consumer price in India of around $3 per MBTU. Being hard bargainers, Indians also argued for big buyer concessional rates.
Reports now say the price issue dominated the IPI working group meeting held in New Delhi June 27-29. According to a petroleum ministry official in Islamabad, Iran wants a review of gas prices after three years. Pakistan and India, he said, would assess the new price proposal's implications and may respond at the working group's next meeting. The seller and the buyers have to arrive at a mutually acceptable solution. Notably, however, commodities such as oil and gas tend not to have fixed prices.
As the recent unprecedented surge in oil prices shows, they can fluctuate wildly in response to related economic and political events. Under normal circumstances, nonetheless, they fluctuate within a narrow band, and are determined on the basis of a benchmark such as London InterBank Offered Rate (Libor). There is no reason why a similar benchmark formula cannot be adopted to determine IPI gas prices. Needless to say, such a formula has to be judicious in order to keep the project hassle-free.
Things have come a long way from the time the idea of IPI gas pipeline first surfaced. At the beginning, Pakistan was interested only in taking out a relatively small amount out of the pipeline, which was meant mainly for India. Now it has robust economic activity, rapidly increasing its own energy demand. And, of course, India badly needs energy. In fact, the project has come to be known as a 'Peace Pipeline' because of the two countries' strong common interest in it. Which makes it a special project. It is time for an expeditious solution of all problems that have kept it a mere pipe dream for so long.