'Iran-Pakistan gas pipeline project is a lifeline for Pakistan's economy,' Dr Gulfaraz Ahmed, Energy Expert
The Iran-Pakistan (IP) gas pipeline project is more than just a pipedream for the man who led Pakistan's side in the beginning of the project. Dr Gulfaraz Ahmed is a Stanford-educated PhD in Petroleum Engineering and a gold medalist in Civil Engineering from NUST. He held a number of energy sector portfolios in the Government of Pakistan back in the nineties.
Copyright Business Recorder, 2013
He was the Chairman and CEO of OGDCL (1989-94), founding Chairman of Nepra (1995-96) Federal Secretary for Petroleum and Natural Resources (November 1996-December 1999), and Member, Nuclear Regulatory Board/Authority. Enjoying the confidence and trust of successive governments, Dr Gulfaraz represented Pakistan in major energy initiatives, such as the Trans Asia Pipeline Incorporated (TAPI) project in 1997 and the Iran-Pakistan (IP) gas pipeline project in 1998-99. No wonder then that the Pakistani state's former energy czar has come to associate a great deal of sentimental value with the IP pipeline project - a project he claims was set to materialise by late 1999 had General Pervez Musharraf not toppled the government.
Now an independent energy expert based in Islamabad, Dr Gulfaraz strongly advocates - by employing both reasoning and passion - for the timely completion of the IP gas pipeline project, terming it a "lifeline for Pakistan's economy and its future." In an exclusive interview with BR Research earlier this week, he said that the die has been cast as the two governments are now bound by sovereign agreements. Despite the looming uncertainty, he remains hopeful that this four-week old government will eventually put its foot down and decide what is best for the country's interest.
"If you look at the legacy, it was the last government of current Prime Minister Mian Nawaz Sharif which made efforts to follow through on MoUs signed with the three gas-rich regional countries (Turkmenistan, Iran and Qatar). He had realised that industrialisation of the country required constant energy supply, which in turn required importing natural gas. I am confident that he still realises that Pakistan's economy needs stimulus by overcoming energy crisis, which is reflected in their ongoing, early efforts," he noted.
THE NEED TO IMPORT NATURAL GAS Dr Gulfaraz emphasises on importing natural gas rather than furnace oil for power generation, and suggests the government to fully exploit the country's extremely vast gas transmission, distribution and utilisation infrastructure.
"One of the major causes of energy crisis in Pakistan is that about 35 percent of electricity is being produced by using furnace oil, an expensive resource. That is why the industrial tariff in Pakistan is now among the highest in the world in dollar terms, which constrains the country's ability to export and compete. Natural gas is a far more optimal fuel for power generation, and it has been gross negligence on part of successive governments to continue importing furnace oil for power generation. That has burdened the masses - who are now paying more for lesser electricity - and has also strained the balance of payments situation," he stated.
The energy expert highlighted that since natural gas contributed nearly 50 percent to Pakistan's primary energy mix - which he says is the third highest in the world after gas-surplus nations of Russia and Iran - it is highly strategic for Pakistan to import natural gas as soon as possible, to not only cut down on the cost of power generation, but to also supply this resource to industries, fertiliser manufacturers and for public relief in transport.
IP PROJECT: UNDERSTANDING THE BACKGROUND AND HISTORY To better understand the current impasse on the IP project, Dr Gulfaraz insists on providing a detailed background to Pakistan's regional energy overtures back in the '90s, many of which he remained part of, until Musharraf took over in late 1999.
"We are fortunate that our surrounding region is surplus with natural gas, with countries like Iran (second largest gas reserves in the world), Qatar (third largest) and Turkmenistan (fourth largest). So, importing gas into Pakistan from these regional sources was a simple affair, and Pakistan signed MoUs with all three countries in the '90s. With Iran, there was no third country involved. With Turkmenistan, our neighbour Afghanistan had to be the transit route, while a pipeline from Qatar would have to pass through Iran," he started off.
He recalls that for various reasons, there was slow movement on all the three projects in the beginning. "But the TAPI project soon started moving ahead, because Turkmenistan - the gas producer - had a developed gas field in Daulatabad for which it was very keen to find a market in the subcontinent. The pipeline from Turkmenistan happened to be (and still is) the shortest of the three options, just about 1,450 kilometers in length, upto Multan. The project had a very strong consortium led by Unocal (now-defunct US oil company that merged into Chevron in 2005). Turkmenistan government was also proactive, and companies from Saudi Arabia, Japan, South Korea and Pakistan were also part of it," he added.
"Once all parties finalised the pricing framework in 1997, which happened to be during the last government of present Prime Minister, - with a cap of $2.05 per mmbtu (million metric British thermal units) and a floor of $1.65 per mmbtu - the Unocal-led consortium mobilised in the field. It started establishing bases alongside the length of the pipeline, obtained written agreement and support from all the Afghan warlords, and also started supporting local educational initiatives for the population alongside the pipeline route. The Afghan government also came on board," he informed.
So, apparently, everything was perfectly in place. But then dropped, in the energy expert's words, a 'bombshell' when in early 1998, the US State Department suddenly declared the TAPI project against the US strategic interests because the project seemed to strengthen the then-Taliban government in Afghanistan.
"I think that the US government didn't initially believe that TAPI would materialise due to regional difficulties. But when they saw that the pipeline construction was about to begin, they pulled the rug from underneath and ordered Unocal to come out of the consortium. So, this was the first time that on US insistence, Pakistan would be deprived of a feasible energy resource. Now in the near timeframe of crucial relevance to Pakistan, TAPI is no more feasible."
Dilating further on his recollection of the energy parleys of the late '90s, Dr Gulfaraz told BR Research that following the region's TAPI debacle, Pakistan started serious negotiation with Iran on the IP pipeline project. "I was designated by the government to negotiate the deal with my Iranian counterpart, and after various rounds, we were hoping to finally agree on a pricing framework in the later months of 1999. We were expecting a pricing framework slightly lower than what had already been signed with Unocal and the government of Turkmenistan, ie $2.03 per mmbtu cap and $1.62 per mmbtu floor," he said.
"Unfortunately, before the Iranian representative's next visit, General Musharraf had taken over, and this whole process was interrupted. Let me say this that if the General hadn't intervened, Pakistan would have achieved favourable gas pricing and the pipeline construction would have started in the ensuing months. This pipeline would have gone on to serve Pakistan for about 50 years."
FOR IP, 2000S WAS A DECADE OF MIXED RESULTS Dr Gulfaraz, who left the government a few weeks after the military coup, laments that for the first few years into Musharraf's rule, there was no mention of the IP project. He claims that it was his energy consultancy for UNDP Pakistan, especially his December 2003 report 'Peace and Prosperity Gas Pipelines' that would go on to bring regional gas pipeline projects under focus in Pakistan and India.
"Working as UNDP's Senior Energy Consultant, my goal was to produce an objective document that would help the decision makers in India and Pakistan and make them aware of the benefits of a short-distance, shared pipeline from Iran. Within a year and a half of the report's launch, the gas pipeline process was revived when the three governments started talking to each other. Momentum picked up in 2005-06, a tripartite commission was set up which later conducted regular meetings, and there was renewed optimism on how this pipeline can improve relations between India and Pakistan," he recalled.
"The seedling was progressing very well. But then in 2007, the US State Department threw a spanner in the works and undermined, for the second time in less than a decade, prospects of yet another regional energy corridor. Then Secretary of State Condoleezza Rice visited India in 2007, urged the host government to withdraw from the pipeline negotiations, and offered them access to modern civil nuclear power technology. In 2008, the Indo-US governments signed that agreement and today India has access to sources of uranium fuel as well as most-modern, economies-driven nuclear power plants," he noted.
"I strongly feel that as the frontline state for US-led war against terror and having accepted heftily the whole wish lists of the US, Pakistan's then-government should have insisted on a quid pro quo for getting the same option for Pakistan as was provided to India," he said.
What is common in TAPI and IP that US would find worth obstructing, he asks - but then answers himself. "There is nothing common between Turkmenistan and Iran gas pipelines, except that the beneficiary was supposed to be Pakistan and its masses. The US didn't care about its frontline ally's energy woes, for whenever TAPI or IP seemed to even start to move into the realm of reality, the US jumped in and stopped it," he lamented.
TO THE NEW GOVERNMENT: BUILD THE IP PIPELINE! Dr Gulfaraz considers the energy crisis as a consequence of complete neglect of the Musharraf era and a case of total mismanagement, lack of commitment and blatant corruption on the part of the last government. He believes that given merit, transparency and knowledge, the new government should be able to turn the energy crisis into energy strength, giving a boost to economy and relief to the masses. Nonetheless, he appreciates the PPP-led government for holding its ground on the IP pipeline project.
"Now it is upto the new government to chart a clear course of action with Iran, a neighbour with which Pakistan shares not only about 1,500 kilometres of border but also the common bonds of culture. The new government has inherited this lifeline project, and it should now implement the project rather expeditiously. In order to open the heart and minds for gas price renegotiations and to develop deeper understanding, it will be appropriate in time and manner that the newly-elected Prime Minister of Pakistan makes his maiden foreign visit to Iran which also has a newly-elected President now," he proposed.
Despite the delays, Dr Gulfaraz thinks that the IP project is still feasible for Pakistan. "Financing the pipeline construction on our side isn't really that difficult. Our two gas utilities are very solvent, and can raise financing to fund their expansion projects. However, the government must renegotiate the pricing mechanism which seems to be on the higher side. A price around $6 per mmbtu would be acceptable to Pakistan, in my estimate. The point is that this imported gas project is supposed to stimulate the economy, not burden it. When I say that IP is a lifeline for Pakistan's economy, it is strictly a function of price. It is not an unqualified need of Pakistan due to economic viability issues," he added.
But inaction on account of differences on pricing regime is also not an option.
"The Pakistani state has entered into sovereign agreement with Iran, which stipulates construction of Pakistan's side of the pipeline by December end next year. If there are delays beyond that, there will be daily penalties on Pakistan which it has duly agreed to, and which can run into millions of dollars per day. Iran has already made the investment and it has a legitimate expectation of return. Bilateral relations may get terribly complicated once those penalties are invoked in the future and they start piling up on daily basis. If government is serious about this project, it must renegotiate the price and then sincerely start implementing it while renegotiate the cut-off date for penalties," he advised.
AMERICAN REACTION AND THE REGIONAL ALIGNMENT To manage the US reaction over the IP project completion, Dr Gulfaraz argues for a dialogue. "The State Department has been emphasising that following through on IP project would be a violation of US Congress's economic sanctions on Iran. I would state that the IP project predates the new sanctions, and it ought to be seen in the context of a project which is in the flow since the mid-nineties and not be considered something new. Moreover, Pakistan is not making any investment inside Iran," he argued.
So, he has called upon the Pakistani government to sit down with the US government for a substantive, but cool and calculated talk to make them understand the criticality of this project to Pakistan's survival. "Instead of two good friends giving public statements about a project, it's far better for them to sit down together and develop a common understanding," he suggested.
Dr Gulfaraz has also advised the Pakistani leaders to take encouragement from the fact that most regional powers are in favour of the IP project. "Strategically, Russia has always been extremely interested in the IP pipeline compared to TAPI. They even delivered Gazprom to become part of this project. Realising that its southern provinces can benefit from the IP pipeline sometime in the future, the Chinese government also has its eye on the project. Though India has been dilly-dallying to exert its regional influence, I think that it would also want in eventually," he observed.
The energy expert points towards a "fleeting opportunity" which he feels the new government can avail. Since America needs Pakistani logistics corridors for withdrawing bulk of its war machinery and equipment from Afghanistan by the end of next year, "the minimum favour America can return to Pakistan is to facilitate the IP pipeline project and allow access to civil nuclear power technology for its generous ally," he contended.
THERE IS NO WAY AROUND IP Concluding the interview, Dr Gulfaraz asserted that Pakistan will need multiple gas pipelines to meet its future energy needs, not just one. "By 2019, Pakistan would need the second IP pipeline and by 2025, the third. Anticipating the growing need of Pakistan's gas market, Iran has built a 56 inches diameter pipeline to our border. The design of present IP Pakistan section is of 42 inches diameter, which would utilise only 56 percent of Iranian's section's capacity. Iran would not need to make additional investment for the second IP pipeline, but for the third IP Pakistan section, they would need to invest some money on adding more compression on the same Iranian section."