Risking arbitration


It goes without saying that Pakistan’s energy demands have been a persistent challenge for the country, prompting the pursuit of various energy projects. Among these ventures, the construction of gas pipelines from Iran and Pakistan has been considered a crucial step towards alleviating Pakistan’s energy crisis. However, despite the initial progress made, Pakistan now finds itself in a precarious position as it risks facing arbitration if it fails to complete the 2,775-kilometer-long pipelines.
The Iran-Pakistan gas pipeline was envisioned to be a lifeline for Pakistan’s energy needs. The project aimed to transport natural gas from Iran to Pakistan, offering a reliable energy source and reducing the country’s reliance on expensive imported fuels. Moreover, this pipeline had the potential to foster regional cooperation and strengthen ties between Iran and Pakistan.
This pipeline was formerly planned to extend to India and was called Iran-Pakistan-India (IPI) Gas Pipeline, however, after India withdrew, Iran and Pakistan went ahead with the plan. But still the project faced with numerous obstacles and its construction come across in ordinate delay which depicts dearth of robust diplomacy between the countries despite claiming brotherly relations.
As per details carried on these pages, the Public Accounts Committee (PAC), led by MNA Mohsin Dawar, has also expressed grave concern the non-completion of the project which could lead Pakistan to pay a staggering amount of $18 billion in penalty if the country did not go ahead with the Iran-Pakistan Gas Pipeline project.
The committee was informed that as per agreement the pipeline should be completed by 2024 and in case of failure Pakistan may face arbitration in a French court and it might face $18 billion in fine if it terminated the Iran-Pakistan (IP) gas pipeline agreement. The chairman urged the Ministry of Commerce to furnish the comprehensive report regarding Pak-Iran trade potential.
Discussions between the governments of Iran and Pakistan started in 1995. A preliminary agreement was signed in 1995. This agreement foresaw construction of a pipeline from Iran’s south Pars gas field to Karachi. Later Iran made a proposal to extend the pipeline from Pakistan into India. In February 1999, a preliminary agreement between Iran and India was signed. In 2009, India withdrew from the project over pricing and security issues, and after signing a civilian nuclear deal with the United States in 2008.
In 2019, the plans to complete a pipeline delivering Iranian gas to Pakistan stalled due to subject to US sanctions. Iran-Pakistan Gas Pipeline is considered a controversial project in Pakistan. A large number of professionals believe that the Gas Pipeline is an energy lifeline for Pakistan.
The cost-benefit analysis of the project shows that it will ease pressure on Pakistan’s energy shortages and substitute the use of expensive furnace oil for power generation. The imported gas from Iran will help replace the costly furnace oil being used as fuel in power houses in Pakistan that will help to save one billion dollars per annum.
Pakistan’s failure to complete the Iran-Pakistan gas pipelines poses a significant risk of international arbitration, with severe consequences for its economy, energy security and diplomatic relations. To avoid such a scenario, Pakistan must prioritize the completion of these essential projects and take immediate measures to address the challenges hindering their progress.