Iran-Pakistan gas pipeline: the cost of ‘friendship’

By Kazim Alam

Any discussion on Pakistan’s energy crisis is bound to have a reference to the ‘cheap energy’ that Iran has reportedly offered us. This is a myth. It’s not cheap. Let’s see in both political and economic terms.

The Iran-Pakistan (IP) gas pipeline, which was initially planned as Iran-Pakistan-India (IPI) gas pipeline, is estimated to cost us $1.5 billion.

What never occurs to most Pakistanis is that the country simply doesn’t have $1.5 billion to spare.

Which international financial institution (IFI) will lend us $1.5 billion to invest in a country as volatile as Iran? IFIs want assurances – like any individual investor – that their investment is safe, feasible and will yield results.

Doing business with Iran is not the wisest thing in the world. That’s why India pulled out of the IPI project, although it denies that it backed off due to U.S.pressure.

With no IFI coming forward to help Pakistan fund the project, the government has decided to raise the money from within the country.

Here’s where cynic Pakistanis need to open their eyes and know the facts.

Recently, the Council of Common Interest (CCI) OK’d the proposal of the Ministry of Petroleum and Natural Resources to raise $1.2 billion for the IP project by imposing a petroleum development levy (PDL) on end-consumers.

The rest of the amount, i.e. $300 million, will be raised through local banks and China and Russia.

The PDL is expected to raise $300 million, or Rs25 billion, annually.

What it means is that we, as consumers, will pay 80 per cent of the project cost upfront while only 20 per cent will be covered through traditional means.

The whole idea of the banking system is that you borrow money, invest it in a project, make it self-sustaining and pay back the loan.

But what’s happening here is the opposite of conventional wisdom. End-consumers will finance a commodity that hasn’t reached them yet. They’ll do so by paying a heavy tax on natural gas.

Yet, I don’t know whether it’s a good deal. Maybe the IP pipeline is the only alternative Pakistan currently has in order to prevent the decline in its domestic production of four billion cubic feet gas per day (bcfd) to two bcfd in 2020.

But don’t forget the fact that Pakistan will import only 0.57 bcfd (to be extended to one bcfd) under the IP pipeline project.

What I’m trying to highlight here is that Pakistanis like the idea of ganging up on the United States in their own subtle ways. We think that Muslim brotherhood plays a role in economic matters. We live in a fool’s paradise.

Despite India pulling out of the initial IPI project, if Pakistan is going ahead with it – and has vowed to raise $1.2 billion by imposing a levy on end-consumers – I’d say the government must have seen some good in the deal.

What’s bothering me, however, is the continuous insistence of my fellow countrymen and -women to do business with Iran, although they’re opposed to another major hike in gas prices.

Also, it’s not just gas whose prices will go up after the PDL is imposed. Our energy mix is primarily gas-based (48.7 per cent). Expensive electricity, expensive fertiliser and expensive food will be the PDL’s direct consequences.

Let me say once again, I’m not calling the deal good or bad. More natural gas will obviously boost the economy, create jobs and keep our gas stoves warm.

My point is that most Pakistanis don’t know what they’re wishing for.

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