The gas from Iran via Pakistan is four-time cheaper for India than LNG or Iranian gas import through deep-sea gas pipeline by New Delhi. The Iranian gas will be cheaper for India even if the price included the transit fee payment to Pakistan.
This was stated in a research paper prepared by Zahid Asghar of the Quaid-i-Azam University and Ms Ayesha Nazuk of the Allama Iqbal Open University (AIOU). The paper was presented at the 23rd annual general meeting and conference of the Pakistan Society of Development Economists (PSDE) and the Pakistan Institute of Development Economics (Pide) here on Wednesday.
The paper, entitled 'Iran, Pakistan, India Gas Pipeline - An Economic Analysis in Game Theocratic Framework', says the project is economically viable, but it might suffer due to geo-political scenario of all the three countries involved. One main player of this game is the United States, which is aimed at isolating Iran on both economic and political front.
Pakistan has always been enthusiastic to start IPI project, but India has whether explicitly or implicitly showed reluctance to join the project. The IPI project is pending due to many geo-political, geo-strategic and geo-economic factors. But concentrating on the geo-economic ones, mainly due to the transit fee issues, Pakistan has been demanding transit fee of US 50 cents per million British Thermal Units (MBTU), while India wants it to be US 15 cents per MBTU.
India can import Iranian gas through Pakistan the most viable economic route, but politically fragile one given the past history of both the countries in mind. Both countries lack confidence in each other, said the paper.
Another important paper, entitled 'How Pakistan is coping with the challenges of high oil prices', authored by Afia Malik of Pide, observed that that Pakistan's limited refining capacity led to heavy dependence on the imports of petroleum products. The demand for refined petroleum products greatly exceeds domestic oil refining capacity, so nearly half of Pakistani imports are refined products.
According the demand for petroleum products in the country is about 16 million tonnes out of which only 18 percent are met through local resources while the balance 82 percent is met through imports.
Since the late 1980s, Pakistan has not experienced any new oil fields. As a result oil production has remained fairly flat at around 60,000 barrels per day. While there is no prospect for Pakistan to attain self-sufficiency in oil, the government has encouraged private (including foreign) firms to develop domestic production capacity.
In the downstream the oil sector there are seven refineries working in the country as on July 1, 2006, with the total capacity of refining 284660 barrels per day or 12.88 million tonnes per annum. Given the level of oil resources there is no likelihood for the country to attain self-sufficiency in oil, Pakistan's net oil imports are projected to rise substantially in coming years.
Even if the high cost of oil imports is managed, the country lacks the necessary infrastructure to handle the increasing volumes of imported oil. Since prices are rising swiftly there is a need for huge investment to improve the infrastructure (ie, refinery) to reduce the import bill of the country. The government has given incentives in the form of Petroleum Policy 1997 to attract private investors.
Here it would be useful to add that the bulk of the crude oil requirement of the country refineries is met through government to government contracts with Saudi Arabia. The terms of these contracts are not made public and refineries are charged market (international) related prices, any benefit or discount goes to the government.
The net imports for the period 2001 to 2006, correspond to a base oil price of $28.21 per barrel in 2001, which increase by $14 per barrel in 2006, that is, increase of $36.93 per barrel, equivalent to 130.9 percent increase of the base price. The ratio calculated for Pakistan comes out to be (-5.47), it indicates the proportional loss in GDP as a result of price increase of $36.93 is equivalent to a shock lowering GDP by 5.5 percent.
Our petroleum imports account for 24 percent of total imports and represented up to 44 percent of export earnings in 2006-07. While in 1999-2000, the share of petroleum imports was 27 percent of total imports and accounts for 33 percent of total export earnings.