December 27-2013
The Islamic Republic has rescinded its offer to fund a half billion dollars of the cost of Pakistan’s gas pipeline and told Pakistan to go find the money on its own.
The Iranian loan was expected to cover about one-third of the costs of the pipeline. But Pakistan was unable to find anyone else to fund the other two-thirds. No one suggested how Pakistan could now find someone to fund all of he pipeline’s costs.
The loan was put together by the previous administration of President Mahmud Ahmadi-nejad. Its cancellation appeared to be one more example of the Rohani Administration cleaning up what it sees as the economic damage done by the previous government.
Deputy Iranian Oil Minister Ali Majedi explained the decision simply by saying that Iran does not have the money to fund the pipeline. But it may go deeper than that and represent suspicion that Pakistan is such a basket case that it is unlikely to be able to pay for the gas even if Iran were to pay for the pipeline.
Pakistan subsidizes gas sales heavily so that its national gas company doesn’t have the revenues needed to pay its way.
Pakistan and Iran formally inaugurated the pipeline project at the border last March. Iran has been saying that the pipeline construction is booming away and would be completed on deadline by December 31, 2014. But last week, the Oil Ministry finally fessed up that nothing is happening. The March ribbon cutting was just a show.
Deputy Oil Minister Majedi complained last week that Pakistan has done next-to-nothing to advance the gas pipeline. Furthermore, he said there was no hope of the pipe being completed on deadline one year from now. “If a contractor is chosen today and pipeline construction begins today, it will take four years to complete it.” Majedi said.
Under the original agreement signed between Iran and Pakistan, if Pakistan doesn’t finish the pipeline by next December and start taking gas, it will have to pay a daily penalty of $1 million until it does so.
That is a very heavy penalty, but Oil Minister Bijan Namdar-Zanganeh has already been quoted as saying he knows full well that Pakistan will never pay it. Majedi said the countries are in negotiations about a new completion date.
In fact, his comments implied that the entire contract was up for review, as requested by the Pakistanis, including the pricing formula, which a recent Pakistani think-tank said would require Pakistan to pay four times market prices for the Iranian gas.
Last week, the Express Tribune in Islamabad quoted an unnamed Foreign Ministry official as saying Pakistan would not be able to go ahead with the deal until US sanctions are lifted.
The pipeline on the Iranian side of the border has almost been completed by Iran. But Iran is not losing, since the pipeline supplies numerous communities all along its route across southern Iran from the Persian Gulf.