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Govt cannot undertake project as sanctions loom

05 February, 2014

ISLAMABAD: Pakistan has formally conveyed to Iran that the gas pipeline project could not be pushed ahead because of the threat of US sanctions and sought an extension in the project deadline in a last-ditch attempt to avoid penalty. However, it has received no immediate assurances.

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ISLAMABAD: Pakistan has formally conveyed to Iran that the gas pipeline project could not be pushed ahead because of the threat of US sanctions and sought an extension in the project deadline in a last-ditch attempt to avoid penalty. However, it has received no immediate assurances.

According to sources, the government does not want to shelve the project and want to wait for normalisation of relations between Iran and the US in the wake of a deal between Tehran and global powers over the former's nuclear programme. This could clear the way for pressing on with the gas pipeline.

A Pakistani team met officials in Tehran recently, where it called for extending the deadline for completing the Iran-Pakistan (IP) gas pipeline project. Under the schedule, first flow of gas must start in December 2014. In case of failure, Pakistan will have to pay a penalty of $3 million per day under the Gas Sale and Purchase Agreement (GSPA).

The delegation, led by Petroleum Secretary Abid Saeed, cited possible US sanctions for the delay.

Iranian officials said they would respond to the request after consulting relevant authorities, sources said. Talks were held in a cordial atmosphere with hopes that Tehran would give a positive response, they said.

Earlier, the Foreign Office had held an inter-ministerial meeting, comprising representatives of the ministries of law, finance and petroleum, which noted that the government had failed to generate funds from different countries and banks due to the risk of sanctions. Even friendly countries like China had backed out.

All the ministries agreed that the government should apprise Iran that US sanctions were a major bottleneck in the way of raising funds and Pakistan would not be able to import compressors for the pipeline.

According to sources, during recent talks in Tehran, the Pakistani delegation stressed that they were sincere about executing the project but they had not been able to raise funds and even bring equipment for the pipeline.

They further said two companies – Germany-based Siemens and US-based General Electric – had expertise in manufacturing compressors to pump gas into the pipeline, but Pakistan would not be able to purchase from these companies due to US opposition.

Earlier on December 9 last year, Petroleum and Natural Resources Minister Shahid Khaqan Abbasi led a delegation for talks with Iranian officials. This was the first interaction on the project since change of governments in the two countries in mid-2013.

They wanted to renegotiate the agreed gas price and the construction contract, but during the meeting, they came to know that it was difficult to implement the project in the face of US sanctions.

Though Iran has signed a nuclear deal with the US and other western powers, Washington has announced that it has not changed its stance on the IP project.

A Pakistani delegation, led by the ministers of petroleum and water and power, visited Washington in the second week of November 2013 and asked US authorities to exempt the IP pipeline from sanctions. However, the US did not give any assurances.

Under the project, Pakistan will initially import 750 million cubic feet of gas per day (mmcfd), which can be extended to one billion cubic feet. The Balochistan government wants 250 mmcfd for consumption at the Gwadar Port, which will prompt the central government to seek increased supplies.

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