Islamabad starts work on Pak-Iran gas pipeline to avoid $18 billion fine

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Digital Desk

2 years ago

An Iranian worker stands in front of a section of a pipeline after the project was launched during a ceremony on March 11, 2013, in the Iranian border city of Chah Bahar. (AFP PHOTO/ATTA KENARE)

ISLAMABAD: Pakistani authorities have started building the 80-kilometer Pakistan-Iran gas pipeline section from Gwadar to the Iranian border where it can be connected to the Iranian portion of the project.

Ahead of Iranian President Ebrahim Raisi’s expected visit to Pakistan on April 22, the government has green-signaled the construction of the Pakistan-Iran gas pipeline to escape a potential penalty of $18 billion. Tehran has decided to move to the Paris-based International Arbitration for non-execution of the project by Pakistan.

Local publication, citing a senior official of the Energy Ministry said that the Inter-State Gas Company (ISGS) has already released tenders for the long-overdue re-validation of survey and Front-End Engineering Design (FEED) by consultants.

The Energy Ministry official stated that the Petroleum Division would request a significant amount for the project in the budget 2024–25 from PSDP due to the Finance Ministry’s anticipated inability to provide the necessary funds from the head of Gas Infrastructure Development Cess (GIDC). The project is expected to be completed in 24 months for Rs44 billion.

The announcement was made amid threats of potential sanctions and the US government’s overt opposition towards the bilateral project between Pakistan and Iran, which has been postponed for nearly a decade. The initial plan was that after the completion of the project in December 2014 it would be operationalization in January 2015.

But in January, Tehran gave Islamabad the final warning to finish building its portion of the pipeline by February or March 2024, failing which it would be subject to a $18 billion fine under the terms of the 781-kilometer project’s Gas Sales Purchase Agreement (GSPA).

According to the officials, the 80-kilometer section of the pipeline needs to be constructed to avoid arbitration in France, which may subject Pakistan to the penalties mentioned above. Following the conclusion of this procedure, the authorities will award the Engineering, Procurement, and Construction (EPC) contract and then start the land acquisition process.

Digital Desk