Iran Sets Deadline for Pakistan to Start Pipe-Laying Work by September 2024.
The Cabinet Committee on Energy (CCoE) has given the green light to commence construction on an 80-kilometer pipeline stretching from the Pak-Iran border to Gwadar, forming part of the IP Gas Pipeline Project.
During its session on February 23, 2024, the CCoE reviewed a summary from the Petroleum Division regarding the IP Gas Pipeline. It approved the recommendations put forth by the Ministerial Oversight Committee (MOC) for the IP Project, established by the Prime Minister in September 2023. The MOC advised initiating work on the 80 km segment of the pipeline within Pakistan, running from the border to Gwadar in the initial phase. The project will be managed by Inter State Gas Systems (Pvt) Ltd. and financed through Gas Infrastructure Development Cess.
All relevant divisions endorsed the project to ensure gas supplies to the Pakistani populace, addressing the country’s growing energy demands. According to the Petroleum Division, this initiative will not only enhance Pakistan’s energy security but also instill confidence in the local industry by guaranteeing increased gas supplies. Furthermore, it is expected to stimulate economic activity in Baluchistan province, contributing to Pakistan’s overall economic development.
The Iran-Pakistan pipeline, initially known as the Peace Pipeline, traces its origins back to a 1994 plan that originally included India. Envisaged as a $7.5 billion, 1,700-mile undertaking, the project aimed to transport gas from the South Pars Gas Fields through Baluchistan in western Pakistan into India. However, the pipeline encountered numerous setbacks over the years, including India withdrawing from the original plan in 2008.
Persistent concerns surrounding international sanctions on Iran have been a significant factor contributing to the project’s delays. If Pakistan fails to commence construction of the IP Gas Pipeline Project within the next three months, it could face a penalty of $18 billion. In August 2023, Iran rejected Pakistan’s force majeure notice to halt construction and granted two five-year extensions for meeting project responsibilities.
Iran had set a 180-day deadline until September 2024 for Pakistan to initiate the completion of pipe-laying work. Tehran warned that failure to accept the suggestion would lead to arbitration in Paris, seeking an $18 billion penalty. Pakistan has been cautious in navigating the geopolitical situation in the region, postponing a decision to seek exemption from US sanctions. Foreign legal firms have expressed the opinion that starting construction on the Iran-Pakistan Gas Pipeline Project could expose Pakistan to US sanctions.
The Inter-Governmental Framework Declaration for the Iran-Pakistan Gas Pipeline Project was signed in May 2009, outlining the supply of 750 million Cubic Feet per Day (MMCFD) of gas for 25 years from Iran’s South Pars gas field, with delivery at the Pak-Iran border near Gwadar.
The Iran-Pakistan Gas Pipeline Project was planned to stretch 1,150km within Iran and 781km within Pakistan. Initially, gas flow was set to begin on January 1st, 2015. While Iran has completed over 900km of construction within its borders, the remaining 250km segment is yet to be built.
Recognizing Pakistan’s challenges, Iran proposed to finance the project and act as the EPC contractor under a Government-to-Government Cooperation Agreement signed on December 1st, 2012. Pakistan’s cabinet approved this agreement on January 30th, 2013. However, Iran unexpectedly withdrew from the agreement on March 17th, 2014. In response, Pakistan invoked Force Majeure clauses and served a notice to the National Iranian Oil Company (NIOC) on March 29th, 2014, after receiving approval from the Prime Minister. Consequently, all project activities have been suspended since then.
The Government of Pakistan (GoP) has remained actively engaged with Iran regarding the gas pipeline project, conducting meetings at both the Technical Committee and Ministerial levels. During these discussions, Pakistan updated Iran on its progress and intentions, including plans to file a Waiver Application and the potential consequences if it’s not approved. Iran stressed the need for urgent progress from Pakistan and indicated that further extensions would depend on substantial advancements within the next three months. Otherwise, Iran may resort to international arbitration under the Gas Sales Purchase Agreement (GSPA). Both parties agreed to establish a high-level committee to address all project-related matters, with the Secretary Petroleum nominated from the Pakistan side to participate in this committee.