Still a pipe dream
AS the Iran-Pakistan pipeline edges closer to the next step — construction of the pipeline on the Pakistani side — the federal government has indicated an interest in revising downwards the tariff to be paid to Iran. Given that gas is slated to begin flowing by the end of 2014, the terms of agreement allow for the readjustment of the eventual gas price to be paid if international prices suggest a revision is merited. The Pakistani case is fairly strong: not only have gas prices declined internationally but they are expected to continue a downward trend as global output rises and demand pressures remain static.
The larger problem is one that the Pakistani government would prefer to avoid stating publicly: with the gap between domestic supply and demand already having grown intolerably large — and expected to grow further very rapidly — the IP pipeline has already achieved near do-or-die status. With the government’s oil and gas exploration and production policy failing to have attracted the kind of interest the government hoped for last year and other deals for imported gas languishing in various stages of completion, the IP pipeline is the main hope in the near-term to avoid gas starvation. Given that the pipeline on the Pakistani side is expected to take up to 15 months to be constructed, the window of opportunity to get the project up and running on time is fast closing. If gas is not flowing by December 2014, the IP pipeline agreement allows for the imposition of stiff penalties on Pakistan for non-execution — money that Pakistan cannot really afford to pay. The timeline is still doable but with a general election on the cards and hard bargaining over the formation of a coalition government expected immediately afterwards, several months could be eaten up. At that point, what is presently doable could become near impossible.
A key impediment could be the money Pakistan has to raise for the construction of the pipeline inside this country. The Iranians have offered $500m of financing, leaving Pakistan to arrange $1bn on its own. Half the sum Pakistan will have to raise has already been lined up but in the present tough economic climate even the remaining $500m can be tricky to arrange. Witness the recent hit the rupee took after the markets were unnerved by the repayment of a few hundred million dollars to the IMF. It may be a forlorn hope to expect the present government to demonstrate judiciousness and alacrity at this late stage but the stakes are too high to fumble again in the midst of a historic energy crisis.