In a landmark development, the Cabinet Committee on Energy (CCoE) on Friday approved the initiation of work on the 80-km segment (Iranian border to Gwadar) of the Iran-Pakistan Gas Pipeline project, and deferred the filing of application for waiver of US sanction on the project due to geo-political situation.
A summary of Petroleum Division regarding IP Gas Pipeline was presented to the Cabinet Committee on Energy (CCoE) in its meeting, giving its nod to the recommendations of the Ministerial Oversight Committee (MOC) for the IP Project, said a spokesperson of the Petroleum Division here.
The committee recommended to start work on the 80-km segment of the pipeline inside Pakistan i.e. from Pakistan border up till Gwadar in the first phase. The project will be executed by Inter State Gas Systems (Pvt) Ltd and will be funded through Gas Infrastructure Development Cess (GIDC). All the concerned divisions gave a positive nod to move ahead with the project to ensure gas supplies to the people of Pakistan, thereby addressing the increasing energy needs of the country. Pakistan has decided to kick -off construction work on 80 kilometre portion of Iran-Pakistan gas pipeline project- from Iranian border to Gwadar- to escape a potential penalty of $18 billion, in case Tehran decided to move to the Paris-based International Arbitration for non-execution of the project. Initially, it has been decided that in first phase of IP project work on 80-km portion from Pak-Iran border to Gwader will be started, the source said.
The estimated cost of the 80-km Pak-Iran border to Gwadar portion of the project will be $158 million and it has been decided to fund it through Gas Infrastructure Development Cess (GIDC), the documents reveals. During the PDM coalition government, the then Prime Minister Shehbaz Sharif had constituted a committee to recommend a way forward regarding the IP project keeping in view its economic viability, financing, etc on January 31, 2023. However, the committee was replaced by the interim government with Ministerial Oversight Committee (MOC) on September 11, 2023. The MOC endorsed the decision of the previous committee and got the waiver application prepared by foreign legal counsel. Moreover, MOC also obtained the legal opinions from foreign legal counsel, M/s Willkie Farr & Gallagher LLP. With regards to US sanctions on Iran, M/s Willkie Farr opined that if Pakistan proceeds with the project, there is a likelihood of imposition of sanctions on the company. Regarding the Force Majeure and/or Excusing Event notice, M/s Willkie Farr opined that Pakistan does not have a strong case post September 2019 under the French law as no documentary evidence is available to support that concrete steps have been taken by Pakistan to implement the project. The MOC, after due consideration to the discourses held with Iran during the past one year has recommended that though the final draft of the waiver application is ready, its filing with US authorities is deferred due to current geo-political situation.
The high-level committee to discuss and resolve all outstanding issues with Iran includes further extension of time under the French Civil Code. In consideration of NIOC’s Material Breach notice, Petroleum Division has constituted the Coordination Committee in January 2024 in accordance with Clause 19.1.1 of the GSPA to be headed by joint secretary, Petroleum Division. The MOC further recommends, subject to approval by competent authority, to start work on construction of gas pipeline from Pak-lran border to Gwadar (80-km of the pipeline), initially, by utilising GIDC funds. The committee decided to continue engagement with the governments of Russia, China, Turkmenistan and Azerbaijan regarding gas swap arrangement in rotation to the project.
Meanwhile, giving the details, an official of the Petroleum Division said that in May 2009 agreement for the project was signed, for supply of gas of 750 MMCFD for 25 years from South Pars gas field of Iran and delivery at Pak-lran border. Under the project 1,931-km line will be laid for transportation of Iranian gas to Pakistan, including 1,150-km long pipeline within Iran and 781-km within Pakistan.
On December 21, 2023, NIO6C served a Material Breach Notice to Pakistan’s Inter-State Gas Limited alleging material breach of buyer’s warranties. Through the same notice, NIOC has served a notice pursuant to the sovereign guarantee issued by Government of Pakistan in favour of NIOC. NIOC gave a 180 days period to ISGS to remedy the alleged Material Breach and referred the matter to Coordination Committee for resolution. In case of none implementation of the project by Pakistan, Tehran will move the Paris-based International Arbitration and it has been estimated that Pakistan will pay potential contractual liability of approximately $18 billion.
