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2. National Institute of Management
14th Senior Management Course
PAK-IRAN GAS PIPE LINE; PROS AND CONS
Presenter
:
Muhammad Abbas Baloch,
Ex-PCS Sindh
Faculty Advisor : Ms Zarrin Qureshi
Dated
: 2oth November 2013
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3. Sequence
• History of Project
• Justification of Project as Solution to
Energy Crisis.
• Background of Sanctions & Applicability to
IP Project
• Recent Progress
• Recommendations
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4. AIM
• To familiarize the participants about
Pakistan Iran Gas pipe line and its
pros and cons.
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5. History of Project
• Idea was first conceived by young
Pakistani Engineer Malik Aftab Khan in
1950 in an article published by the Military
College of Engineering, Risalpur with title
“Persian Pipeline” .
• Idea was finalized in 1989 and Iranian
Government responded positively
Source:The 'peace pipeline'". The National. May 28, 2009.
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6. • Initially, the 2,775 km long pipeline
(approximately 1100 Km in Iran, 1000 Km
in Pakistan and 600 Km in India) was
proposed to emanate from South Pars
Gas field in Iran and pass through
Bandar Abbas, Khuzdar, Sui to Multan
and then to New Delhi
• Initial cost of construction was estimated
at US$ 7.5 billion.
Source: Iran- Pakistan Peace pipeline- Editor Dr. Noor ul Haq (History & Perspective)
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7. Contd
• Discussion started in 1994 and agreement
signed in 1995. It was agreed to construct
pipeline from South Pars Gas field in Iran to
Karachi
• In February 2007, India and Pak agreed to
pay Iran US 4.93 Dollar per Million British
Thermal unit.
• In April 2008, China shown interest in
project and in 2010 Bangladesh also join
the project
• In 2009 India withdrew from project over
pricing and security issue after signing
nuclear deal with US.
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8. Route of Proposed Pipelines
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9. Contd
• No progress till 2004 and project revived after
UNDP report which referred project as peace and
prosperity Gas pipeline
• On 30th January 2013, Pak approved deal with Iran
for laying Pakistani segment of pipeline and on
11th March 2013 project was inaugurated by
President Asif Ali Zardari
• PM Nawaz Sharif Assured commitment to project
in recent 68th Annual Us General Assembly
Session
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10. Project Profile
• Length. Total length is 2775 Km. 1172 km
of length is in iran and known as Iran 7th
Cross Country gas pipeline and remaining
length in Pakistan.
• Route. Starts from Asalouyeh, Bandar-eAbbas, ( Iran) to khuzdar, sui and Multan
( Pakistan).
• Diameter
56 in (1,422 mm)
Source: Noor ul Haq, (2010-07-31). Iran-Pakistan Peace Pipeline.
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11. Project Profile
• Capacity. Initial capacity would be 8.7
billion cubic meter which is expected to be
raised to 40 billion cubic meter.
• Cost. Expected cost to incur on completion
would be around 8 billion US Dollar.
Source: Noor ul Haq, (2010-07-31). Iran-Pakistan Peace Pipeline.
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12. IP Project as Solution to Energy
Crisis
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13. Project as solution to Energy Crisis
• In Pakistan 50 % of generation is on Gas and
30% on oil and non availability of gas is directly
impacted on electricity generation.
• Only 21% population has an access to natural
gas and with rapid urbanization, the demand is
growing
• The supply and demand gap is around 1.2 Bcfd
which will rise to 3.1 Bcfd by the year 2015 and
ultimately to 11.1 Bcfd by the year 2025
Risk Analysis for Construction and Operation of Gas Pipeline Projects in Pakistan by S M Mubin
accessed on 13th November 2013.
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14.  Impact of Energy Crisis has been visible in
Pakistan as it has been battering all sectors
in including domestic industrial, agriculture
and commercial sectors.
 Official statistic suggest that more than
400000 have lost job and annual loss is
estimated to be around 240 Billion Pak
Rupees.
Source:Energy Crisis in Pakistan by Muhammad Asif, Quarterly magazine of South
Asian Journalists & Scholars (July- September 2010), volume 29
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15. Energy Crisis
• Supply
and Demand Gap in Pakistan is described in
following diagram
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16. • Most of our IPPs ( Independent Power
Producer) are on furnace oil and cost of
furnace oil is increasing sharply thus driving
up the cost of power generation.
• Cost of furnace oil increased in real terms
from $ 236 per ton to $ 639 per ton.
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17. Power Generation Mix in Pakistan
• Unfavorable generation fuel mix which is
cause of high electricity tariff is shown in
following diagram
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18. Contd
•
•
The sharp increase in the cost of
furnace oil coupled with the increase in
the share of oil based generation is
causing abnormal increases in the cost
of power generation
Pakistan after completion of project will
import around 750 mcft of natural gas
daily for generation of approximately
4000 MW of electricity.
•
Source: Energy Policy finalized but not announced- Daily Dawn June 29, 2013
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19. Contd
• Replacement of imported furnace oil by
Iranian gas in our industries will result in
estimated saving of billions of rupees.
Source: Energy Policy finalized but not announced- Daily Dawn June 29, 2013
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20. Re-evaluating Gas Price
• Current formula is defective as it allow Pakistan
to have gas at around 87 % of crude oil price but
price should be lowered as Turkey and Armenia
are importing gas at much lower price from Iran
• Cost of gas offered to Pakistan was around 2$
per MMBTU and now it is at around 14$
MMBTU.
• There is need to delink the gas price from oil
price in international market and fortunately Iran
is willing to consider gas pricing concessions for
Pakistan
Source : Pakistan Should Advance after re-evaluating gas price, The Dawn,
13th
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November 2013

21. Risk Analysis of Project
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22. Risk During Construction
• Risks during construction are time
susceptible and the probability of
occurrence of different risk are time
dependent, more is the duration of project
higher are the probabilities. These are
generally related to execution of work
processes, material availability, manpower,
finances (budget),time frame, accidental,
legal and environmental.
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23. Risk During Operation
• In mega projects such as cross country
trunk pipelines investment risk are
considered most import followed by the
security risk. More precisely, risk during
construction and operation of oil and gas
pipelines can be divided into following
categories :o Safety and Security Risk
o Investment Risk
o Natural Catastrophic Risk
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24. US Sanctions & Applicability to IP
Project
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25. Sanctions and Pipeline
• United States asked Pakistan to abandon the
project and in return US will fund construction of
(LNG) liquefied natural gas terminal
and
importing electricity from Tajikistan through
Afghanistan Wakhan Corridor.
• On, 29th January US Consulate General Michael
Dodman threatened with Economic Sanction
• Saudi Arabia is also offering Alternative Package
of cash loan and oil facility if Pakistan abandon
the project.
US warns Pakistan of sanctions over Iran gas pipeline deal, The News 29th January,2013
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26. US & UN Sanctions Regime
• Iran is currently under three layers of
international sanctions targeting its alleged
pursuit of “non-peaceful” nuclear activities
A unilateral sanction regime imposed by
the US in conjunction with the EU and
multilateral regime under the frame work of
the United Nations
Source: Iran-Libya Sanctions Act, 50 U.S.C.
1701 note (1996)
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27. US and UN Sanction Regime
 The Iran Sanctions Act (ISA) is a modified
version of the 1995 “Iran Libya Sanctions
Act” (ILSA) and was passed by US Congress
on30th September 2006. The act requires
the US President to impose sanctions on
foreign companies that invest more than US$
20 million in one year in Iran’s energy sector
 The UN sanctions on Iran have been
imposed via four binding Security Council
resolutions, namely 1737 (2006), 1747
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(2007), 1803 (2008) and 1929 (2010) .

28. A Possible Way Out
• Careful study of US sanction laws reveal
strange loopholes in the text as
Investment" defined as the entry into a
contract that includes responsibility for the
development of petroleum resources in
Iran or Libya
• Statute silent as to whether the
construction of energy transit routes from
Iran might be considered an investment
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29. Pakistan could escape from security
council sanctions on trading with Iran by :a. Pakistan Could opt for waiver just like the
one sought by Turkey and Turkmenistan
as these countries have asked for waiver
stating that they needed to trade with Iran
on the based on their energy needs
b. Secondly, Pakistan can sign a bilateral
investment treaty with Iran
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30. Total Case and US Sanctions
• The French oil company, Total SA, struck a $2
billion deal with Iran in September 1997, to
develop natural gas reserves in Iran’s South
Pars field
• This was the largest single foreign investment
in Iran since the U.S. Embassy in Tehran was
sacked in 1979
• Clinton Adm. found that deal violated ILSA,
but ultimately decided to waive sanctions
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31. Turkey, Azerbaijan and Armenia Case
• It is worth mentioning that, countries, like
Turkey, Azerbaijan and Armenia continued to
import gas from Iran and from the same
company (National Iranian Oil Company)
from which Pakistan intended to buy gas.
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32. Would the Pipeline be an “investment”
under US Sanctions
 The Iranian side of the project will be financed
entirely by Iran and a group of multi-national
investors Iran will be required to put together
 Pakistan's investment in the project will start
after the pipeline reaches Pakistani territory
 Applying a plain-meaning interpretation of
ILSA, Pakistan’s involvement could be
interpreted as one that does not directly
contribute “to the enhancement of Iran’s ability
to develop petroleum resources of Iran.”
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33. Recent Progress
 Meeting between Pakistan PM and Iran
President in 86th UN General Assembly
Session both leader underlined the need for
early completion of project
 PM in an interview in Us said that needs
gas very badly. "We have to run our power
plants and we need gas for them. There is
an acute shortage of gas in Pakistan, so we
have to import gas from somewhere.“
Source: Iran, Pakistan vow to boost bilateral ties, The Iran project,25th September 2013
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34. Contd
• Pakistan PM in an interview said that we
would proceed "unless US give us the gas, or
the $3 million a day."
• Pakistani petroleum minister met with Iranian
counterpart in meeting held on 8th October
2013 to provide $2 billion for the construction
work .
Source: Iran Pakistan commitment to IP Project, The Nation 25th September 2013
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35. • The Minister for Water and Power, Khawaja Asif
while explaining his government’s position on the
controversial project on its visit to US on 12th of
November has reiterated Pakistan stance that,
Building the Iran-Pakistan gas pipeline is our
contractual liability and If we do not do so, we will
have to pay the penalty for breaching the contract.”
Iran pipeline contractual obligation, The Dawn, 13th of November 2013
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36. Iranian Perspective about Pakistan
Commitment
• Total cost of pipe line in Pakistan area is $ 1.5 billion
and Iran agreed to partially finance the pipeline by
providing the funding of $500m. An agreement for
$250m was signed during President Asif Ali Zardari’s
visit to Tehran in February, while there was an
understanding on further provision of $250m for the
project.
• This clearly states that there is no financing problem
and Pakistan is trying to find way out of project due
to fear of US Sanctions.
Source: Uncertainty over Iran Pipeline Project, The Dawn, 8th November, 2013
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37. Contractual Obligation
• Pakistan is under contractual obligation to began
construction of pipeline in Pakistani portion.
• Breach of contract would entitle Pakistan to pay a
penalty of
• Additionally, it would also result in deterioration of
our relation with Iran and further worsen the energy
shortfall in Pakistan
Source Iran pipeline contractual obligation, by Anwar Iqbak, The Dawn 13th November 2013
Source : Pipeline Ambiguity, The Dawn, 15th November, 2013
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38. Energy Geo- Politics and South Asia
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39. US-India Front
• The strategic interest of India and US
converging
• With Ambition to become a global power
and history of troubled relation with Pak
and China, it suits India to remain allied
with US.
• Building IPI would mean contrary to India
interest therefore, it isolated itself from the
project
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of
South Asian Scholar and Journalist Jan to March 2010
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40. Russia- Iran Front
• Europe imports 41% of its gas from Russia
and its Russian plan to make Russia an energy
hub with a vast network of pipelines in its
North, South and West Corridor.
• The Development of South Corridor is possible
through a pipeline from Central Asia,
Afghanistan, Pakistan, China and India.
• Russian see IP will be detrimental to
construction to TAPI which will effect on
Russian dominance.
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of South
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Asian Scholar and Journalist Jan to March 2010

41. China Role
• China see Iran as far safer and strategic
source of energy for its ever expanding
economy and an important link through
Pakistan
• China and Pakistan are already working
on proposal to laying a trans Hamalyia
pipleline to carry Middle eastern crude oil
to China
Source : IP Pipeline, Instrument of Socio Economic Stability, by Aasir Kazmi Quarterly Magazine of
South Asian Scholar and Journalist Jan to March 2010
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42. Balochistan Role
• All major portions of trans national gas
pipleline will pass through Balochistan an
since the death of Nawab Akbar Bugti,
inception of Gawadar port and discussion
about pipeline the law and order has
further worsen.
• Dissatisfaction prevailing among the
people of Balochistan need to be
immediately addressed by integrating
them to main stream
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43. Recommendations
 Pipeline does not bring peace but peace
brings projects such as cross-border gas
pipelines. Pakistan needs to move ahead,
play its due role to complete the project.
 Constructive engagement and diplomatic
reconciliation
with US rather than
confrontation should be our focus. The
completion of IP Pipeline will be a test case
of our diplomatic and political triumph in
future.
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44. • This IP pipeline presents Pakistan with an
opportunity to establish itself as a reliable
energy corridor or energy transit hub
thereby not only achieving energy security
for itself but also earn substantial amount of
foreign exchange in terms of transit fees
and royalties from pipeline by luring India
and China into the project.
• it is imperative to address the Baluchistan
problem properly and justifiably as to
removing this major bottle neck hindering
this enormously vital project.
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45. • Keeping in view the projected increase in
energy demand and expected short fall
of around 10 bcf by 2025 (2500
MMSCFD by 2015), the above pipeline
would be vital to meet the shortfall and
trigger economic growth in Pakistan.
• Pakistan Should stressed to delink the
gas price from oil price in international
market as Turkey and Armenia are
importing gas from Iran at much lower
rate than current rate of 14$ MMBTU
offered to Pakistan.
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46. THANK YOU
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