Pakistan, Iran quietly sign gas deal in Turkey
Wednesday, June 10, 2009
By Rauf Klasra
ISLAMABAD: Pakistan has finally signed the IPI gas pipeline deal with Iran in Turkey on June 5, in relative silence, days before the Iranian election and without any major discussion or debate within Pakistan on whether it was prudent to pay a high price compared to the one originally agreed by Tehran.
Details of the agreement obtained by The News reveal the PPP government was in an unprecedented rush to go through the deal while the Iranians took the deal to their parliament and demanded an upward revision of the gas price after their parliament rejected the original deal.
President Asif Zardari signed the Inter-governmental Framework Declaration with Iranian President Mahmoud Ahmadinejad on May 24, agreeing to the export of Iranian gas to Pakistan for domestic use. Export of Iranian gas to India was made conditional by adding the words if applicable in the May 24 declaration.
According to salient features of the gas sales and purchase agreement (GSPA), Pakistan has decided to purchase only 750 mmcfd gas for 25 years, renewable for another five years. Delivery point of the gas will be at the Iran-Pakistan border near Gwadar at a minimum pressure of 55 Barg (800 psig). The project on completion will be able to support 4,000 MW of power generation capacity.
The documents show Pakistan and Iran agreed in January 2007 on a gas price formula, which linked the delivered gas price at Pakistans border to Japanese Crude Cocktail (JCC), on an average crude oil parity of 45 per cent.
Interestingly, the Pakistani document reveals that Iran took the plea that its parliament had decided that the price of gas to be exported should match the price being paid by its other buyers, namely Turkey and Armenia. Accordingly, Iran offered a revised price having an average crude oil parity of 78 per cent.
The document defends the decision of allowing Iran 78 per cent parity instead of 45 per cent by arguing that a rigorous analysis was conducted and it was concluded that imported natural gas even at the revised price remains the cheapest and most suitable fuel for power generation. It claimed annual savings would range from $735 million to $1.2 billion for LNG, depending on the crude oil price if it was between $50 and $100 per barrel.
According to the documents, Iran has already completed a 900 km, 56 inch pipeline from Assaluyeh to Iranshehr and the remaining 250 km from Iranshehr to the border near Gwadar will be completed in less than two years. Pakistan has to construct an 800 km pipeline from the border, traversing along the Makran Coastal highway to Nawabshah.
But the interesting revelation was that while the size of the pipeline in Iran was 56 inches diameter, in Pakistan only a 42 inch pipe will be laid, which would cost around $1.25 billion in four years. So, any export of gas to India later through this pipeline was out of question and Pakistan and Iran have practically removed India from the IPI definition.
While documents say detailed and rigorous analysis was done, the fact was that in Pakistan the deal was never taken to any parliamentary forum or the house as done by Iran and it was never discussed.
Talking to The News, Petroleum and Natural Resources Secretary Mehmud Saleem Mehmud confirmed the deal was signed in Turkey on last Friday by the managing-directors of concerned gas companies of both the countries.
Saleem strongly defended the deal signed between the two countries, saying it was done after a lot of comprehensive negotiations between Iran and Pakistan. When asked why Iran had sold the gas at 78 per cent parity against its earlier offer of 45 per cent in Jan 2007 a shocking raise of 33 per cent over the price offered hardly two years back, he replied actually, on the one hand, the demand for the Iranian gas was rising in the international market while, on the other hand, the Iranian parliament, too, had made it mandatory for its government to sell the gas at the price which was offered to Turkey and Armenia.
Although, Saleem did not say this, but his reply gave a clear idea that the Iranian government did not give any preferential treatment to Islamabad at the time of gas deal. When asked why the deal was made in such a rush as neither side waited for the new government in Iran after the presidential elections on June 10, the secretary replied the negotiations were going on for a very long time and there was nothing left to discuss.
He said the positive impact of this gas deal would be felt in the long run when cheap electricity would be produced in the country for domestic consumers and the rising requirements of the energy would be met to boost the industrial sector.
Pakistan, Iran quietly sign gas deal in Turkey
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). They also have their own oil and gas, the brown fields of Bombay High has increased production by 32% using advanced recovery techniques such as extended reach drilling. Not bad for a field that started producing in 1976 and was expected to run out well before the start of the new millennium. The icing on the cake is a relatively recent deep sea find in the Krishna Godavari basin and another more recent discovery in the Deccan plateau, the only challenge with the former is the current capability of Indias premier engineering company is limited to a 1000 meters while the gas needs to be piped from 6000 meters from the ocean surface. 
