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IP pipeline: the energy corridor

Amidst heightened frenzy of elections approaching in Pakistan, the President of Pakistan announced the commencement of Iran-Pakistan gas pipeline (IP)on March 11, 2013.The purpose of this project was to import natural gas from energy-surplus Iran to energy-deficient Pakistan; an economically viable project which also has very good potential to enhance bilateral economic trade partnerships in the region.

Unfortunately, however, geo-political considerations have caused inordinate delays and made, this otherwise beneficial project, hostage to numerous challenges. It will be, therefore, relevant here to analyse the opportunities and challenges that lay inherent in the execution of the project.

There are no two opinions about the economic advantage of the project for the people of Pakistan. The 2700-km long pipeline, to be built at a total cost of $7.5 billion, will travel from Asalouyeh in Iran through Gwadar to Nawabshah in Pakistan. Pakistan will import 750mcft of natural gas daily to support 4000 MW of power generation capacity. This will help in bridging the increasingly widening energy gap at a cost effective rate and will provide the much needed relief to economy by kick-starting the stagnant wheel of industry. Replacement of imported furnace oil by Iranian gas in heavy industries, it is estimated, will result in annual saving of billions. As major portion of pipeline, almost 1000km, will run through Balochistan and Sindh, the construction of pipeline – also termed the “peace pipeline” – is envisaged to create large-scale employment opportunities for local population and usher an era of progress and prosperity in the conflict-ridden, backward areas.

From the trade perspective, IP gas deal is a great infrastructural project that will help expand bilateral trade in invaluable energy resources, obviously of much significance to energy-deficient Pakistan. This will, in turn, result in investments in other areas of mutual trade interest and will, hopefully, raise Pakistan’s negligible share of trade volume with Iran, hovering at less than 1% at present. Economic security will certainly pave way for regional security in the long run.

Along with these immense opportunities, there are major challenges ahead as well. First and most formidable challenge is countering US pressure that may lead to economic sanctions in extreme scenario. China and India have successfully offset similar international pressures and are now investing in Iran’s oil and gas sector, fearlessly, to their economic advantage. Despite levying sanctions against Iran, the EU itself is its second major trading partner as per IMF statistics. But do we have the similar economic strength, political resolve and bargaining power to pursue our economic interest in teeth offormidable international opposition, particularly, when we are grossly dependent on US aid and loans for our loan repayment crisis?

Second is the sincerity and political will of our policymakers to execute the project in the backdrop of US opposition. The idea of gas pipeline was originally conceived in 1995, agreement between Pakistan and Iran was signed in 2010, and execution of the project was announced in 2013. This enormous delay of eighteen years, with energy crisis going from bad to worse, amply underscores the absence of political resolve. The present government announced the project at its fag end, and it is not sure whether the caretaker government or even the next elected government will execute the pipeline project enthusiastically.

Third is the security situation in Balochistan. The major portion of pipeline’s length will be passing through Balochistan and thereby, if built, will face major security peril, particularly when insurgency in the province has intensified unabated. Do we have a sound political and security plan to take the Baloch nationalists on board? Historically, there is a tendency of sabotaging developmental projects if there is a perception that their economic interests have been overlooked.

Therefore, it is obvious that constructive engagement with the US on the issue is crucial for the success of this project. A path of diplomatic reconciliation rather than confrontation should be our focus. The US-proposed Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline is being considered as well. However the completion of IP pipeline will be a test case of our diplomatic and political triumph in future.

India showed her willingness to join the pipeline deal and signed an MoU to this effect but eventually walked out stating security and pricing issues. Inclusion of India or similarly China can provide the much desired impetus to counterbalance international pressures on this vulnerable bilateral deal.

The IP pipeline has a great geopolitical and economic significance for Pakistan if it is completed. It will be reinforcement of new chapter of Pak-Iran trade relations in the backdrop of much needed regional co-operation. However if it could not see the light of the day it will be due to mounting US resistance, and our own security problems and lack of political will.

(The writer holds LLM degree in International Economic Law from The University of Warwick)

Beelam Ramzan, "IP pipeline: the energy corridor," Business recorder. 2013-03-25.