The presidents of Iran and Pakistan on Monday inaugurated the construction of a much-delayed section of a $7.5 billion 42-inch diameter gas pipeline linking the two neighbours, Iranian media reported. The project was launched at a ceremony on the Iran-Pakistan border attended by President Mahmoud Ahmadinejad and his Pakistani counterpart Asif Ali Zardari, the reports said.
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The two leaders jointly unveiled a plaque before shaking hands and offering prayers for the successful conclusion of the project, which involves the laying of a 780 kilometre (485 mile) section of the pipeline on the Pakistani side, expected to cost some $1.5 billion.
"The completion of the pipeline is in the interests of peace, security and progress of the two countries ... it will also consolidate the economic, political and security ties of the two nations," they said in a joint statement. Ahmadinejad hailed the fact that work on the new section of pipeline was going ahead despite US sanctions against Iran's oil and gas sector imposed over its controversial nucleaer programme.
"This gas pipeline is a sign of show of resistance against domination," Ahmadinejad said. "There are some nations who are against the progress of people, and so they are using the nuclear issue as a pretext to hinder the progress of the nations." he said. "This pipeline has nothing to do with the nuclear issue, you can not build a nuclear bomb with natural gas," he said, speaking alongside Zardari in comments broadcast live on state television. "This pipeline is peacemaker, so if those countries are not co-operating, then they should not get in the way." Although the pipeline on the Iranian side has almost been completed, Pakistan has run into repeated difficulties, both in financing the project and over the threat of US sanctions.
Like the European Union, Washington has slapped crippling unilateral sanctions on Iran over and above UN sanctions imposed over its refusal to suspend uranium enrichment. Iran eventually agreed to finance a third of the costs of the Pakistani part of the pipeline, with the work to be carried out by an Iranian company.
Pakistan says it plans to generate 20 percent of its electricity using Iranian gas from the pipeline. The visit was Zardari's second to Iran in a fortnight and came after officials said a consortium would start work on the pipeline on Pakistani territory despite the US sanctions threat.
Analysts said Zardari's Pakistan People's Party was likely to seek to exploit its defiance of Washington over the pipeline to boost its popularity ahead of a general election in May. Iran has promised $500 million to help Pakistan with the cost of building its side of the pipeline, but it is unclear whether Islamabad - grappling with a weak economy - will find the remaining $1 billion it needs to complete the work.
Iran has the second largest gas reserves in the world, but has been strangled by a Western oil embargo that has seen its crude exports halved in the past year. It currently produces around 600 million cubic metres of gas per day, almost all of which is consumed domestically due to lack of exports. Its only foreign client is Turkey, which buys about 30 million cubic metres of gas per day.
India quit the project in 2009, citing costs and security issues, a year after it signed a nuclear deal with Washington. Pakistan has pursued the pipeline scheme as a way of alleviating severe energy shortages that have sparked demonstrations and battered a weak government. At the same time, it badly needs the billions of dollars it receives in US aid.
"The Pakistani government wants to show it is willing to take foreign policy decisions that defy the US, particularly when such crucial issues as energy security are at stake," said Anthony Skinner, a director of British-based Maplecroft risks consultancy. "The pipeline not only caters to Pakistan's energy needs, but also lodges brownie points with the many critics of the US amongst the electorate," he told Reuters.
Iran has completed 900 km (560 miles) of pipeline on its side of the border and Iranian contractors will also construct the pipeline in Pakistan, Iran's national broadcasting network IRIB reported. The two sides hope the pipeline will be complete in time to start delivery of 21.5 million cubic metres of gas per day to Pakistan by December 2014.
The project faces security challenges posed by ethnic Baluch militants who have demanded greater control over Baluchistan's natural resources, and by Iranian Sunni insurgents also based in Pakistan who are fighting for greater rights in Iran.
"Having a pipeline running through the region makes it particularly vulnerable to bombings and disruption," said Skinner. "Washington could bolster its support for local elements, causing significant disruption to pipeline infrastructure." President Asif Ali Zardari regarded the Iran-Pakistan gas pipeline project as "very important" for Pakistan.
Zardari said the prosperity of Pakistan and Iran was inter-linked and the former was striving to become self-reliant. He said the international community was unaware of the problems of regional countries and was not cognisant of appropriate solutions to many issues. He said the relations between Pakistan and Iran were strengthened through commonality of religion and culture.
He said the world peace was correlated with peace in Pakistan and stressed that the country was not against any other state. President Ahmadinejad, in his address terming the gas project a "Peace Pipeline", said it would usher in a new era of prosperity and development for the two countries. "The pipeline is the symbol of determination of the two nations," he said, adding that success was possible through unity of regional states. He said the gas pipeline could be extended to the north of Pakistan as well.
He said Pakistan was a great nation with extraordinary talent. He said both Pakistan and Iran needed to stand by each other for the progress of their peoples. He said the gas project was linked with the welfare of masses and categorically added that those who opposed this, had no right to create hurdles in the way.
The ceremony was attended by a large number of foreign dignitaries, ministers, members of parliament and political leaders from both the countries. Former Prime Minister Syed Yousuf Raza Gilani and the United Arab Emirates Energy Minister Mohammad Bin Dha'en Al Hameli also attended the event. Federal ministers, including Qamar Zaman Kaira, Makhdoom Amin Fahim, Arbab Alamgir, Mehreen Anwar Raja and Dr Firdous Ashiq Awan, Advisor on Petroleum Resources Dr Asim Hussain and Deputy Speaker National Assembly Faisal Karim Kundi were present. Iranian Minister of Oil Rostam Qasemi and Minister of Industry, Mine and Trade Mehdi Ghazanfari were also present.
Pakistan has already brushed aside the foreign pressure regarding the mega project, stating that the project was being commissioned purely to meet its economic needs and being executed by two sovereign states. Earlier, President Zardari on his arrival at the Chabahar Airport in south-eastern province of Sistan, was warmly welcomed by the Iranian President.
During a brief meeting prior to the inaugural ceremony of the pipeline, President Zardari and his Iranian counterpart expressed the hope that the project would promote peace, security and progress in both the countries and the region. The two leaders said the project would help enhance economic, political and security ties between Tehran and Islamabad.
Tehran-based Tadbir Energy Development Group will undertake all engineering procurement and construction work for the first segment of the project, which starts from the Iran-Pakistan border. The Iranian firm will also carry out the second segment of the project, while the remaining amount is expected to be generated through Pakistan's Gas Infrastructure Development Cess (GIDC).
Reuters adds: Pakistan's stock market closed lower on Monday after a gas pipeline deal with Iran raised fears the United States would impose sanctions on Islamabad, dealers said. "Across the board selling was witnessed as investors preferred to reduce their exposure before any negative news," said Samar Iqbal of Topline Securities.
The Karachi Stock Exchange's (KSE) benchmark 100-share index ended 2.46 percent, or 441.62 points, lower at 17,522.56 points. The presidents of Iran and Pakistan marked the start of Pakistani construction on a much-delayed gas pipeline on Monday, Iranian media reported, despite US pressure on Islamabad to back out of the project.
Oil and Gas Development Company was down 4.01 Percent to 196.70 rupees. Foods and Fertiliser Engro Corporation fell 4.59 percent to 122.11 rupees, while Fauji Fertiliser was down 4.3 percent to 106.99 rupees. In the currency market, the rupee ended weaker at 97.85/97.90 against the dollar, compared to Friday's close of 97.70/97.75. Overnight rates in the money market rose to 9.40 percent form Friday's close of 9 percent.