Report cites Iran gas pipeline as ‘economic death sentence’

In this Monday, March 11, 2013 file photo, Iranian welders work on a pipeline to transfer natural gas from Iran to Pakistan, in Chabahar, near the Pakistani border, southeastern Iran. – AP Photo

ISLAMABAD: Pakistan’s plan to import natural gas by pipeline from neighboring Iran would be an economic ”death sentence” for the country because the gas price is too high, a Pakistani advocacy group said in a report released Wednesday.

Despite US pressure, the Pakistani government struck a deal with Iran to import gas in the hope of relieving the country’s energy crisis, especially the shortage of electricity.

Gas is used to fire many of Pakistan’s power plants, but insufficient quantities mean rolling blackouts are common.

The Islamabad-based Sustainable Development Policy Institute (SDPI) said in its report that the contract with Iran means the gas sold to Pakistan likely will be several times more expensive than the domestic gas currently used.

“This is a death sentence for Pakistan’s economy,” the report said. It criticised Pakistani officials who “blatantly ignored the energy dynamics and its pricing while going for this deal.”

An official at the Ministry of Petroleum and Natural Resources rejected the report, saying the pipeline project was good for Pakistan. He spoke on condition of anonymity because he was not authorised to talk to journalists.

The advocacy group’s findings represent the latest challenge to the plan. There are also serious doubts about how Pakistan could finance the at least $1.5 billion needed to construct the pipeline and whether it could go through with the project without facing US sanctions in place over Iran’s nuclear program.

“This gas will be an economic disaster for us,” said the lead author of the report, Arshad Abbasi, at its release in Islamabad.

The chief guest was Shamsul Mulk, an ex-chairman of Pakistan’s water and power authority and former head of the advocacy group’s board of governors. Many other former senior officials and academics are affiliated with the institute.

The report called on the Pakistani government to renegotiate its contract with Iran and uncouple the price of gas with the cost of oil. That could produce lower gas prices that are closer to Pakistan’s domestic cost of gas.

The agreement with Iran stipulates that Pakistan must construct its side of the pipeline by December 2014. If the country fails to meet this deadline, it will be liable to pay fines that could run into the millions of dollars per day.

The Iranian government says it has built 900 kilometers (560 miles) of the pipeline on its side of the border, with about 320 kilometers (200 miles) remaining to be built inside Iran. The Pakistan segment of the pipeline is expected to be about 780 kilometers (500 miles) and has not yet been constructed.

The US has opposed the project, instead promoting an alternative pipeline that runs from the gas fields of Turkmenistan to Afghanistan, Pakistan and then to India. The US also has championed a number of electricity generation projects within Pakistan, such as helping renovate hydropower dams.

The advocacy group also championed the use of hydropower, which is much cheaper than gas but can require significant up-front costs.

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