Pipe dream

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IP’s completion needs a leap of faith

Although it was a close contest, Iran has just managed to edge out Pakistan as the more desperate of the two for the completion of the Iran-Pakistan (IP) pipeline. The contest was a direct matchup between the Iranian rial’s freefall and Pakistan’s plummeting gas shortfall and while both of them are traversing precipitous descents, the former’s drop is not only steeper it’s also facing more antagonism than the latter. Hence, Tehran’s decision to grant Islamabad a $500 million loan ($250 million government loan and $250 million from commercial banks) to lay their portion of the pipeline smacks of a fit of desperation that Islamabad is all too familiar with.

The US is the principal antagonist standing in the way of IP’s culmination, as it endeavours to tighten screws on Tehran’s nuclear programme by stamping on its fiscal nerve. Iran’s economy is heavily reliant on oil and gas, with oil accounting for 50 percent of direct and 70 percent of indirect revenues. And so, Washington’s sanctions on Iranian oil and trade in general with Tehran is what has accelerated the rial’s freefall ($1 = 12,283 rial) and has also warded off interest from banks and firms in Pakistan, like NBP and OGDC, from mulling investment in IP. Even the banking behemoth that Industrial and Commercial Bank of China Limited (ICBC) is, was deterred away from financing the project in March this year, as China’s “all weather friend” billing and ICBC’s “world’s largest bank” status both came under scrutiny. Chinese banks are holding out for a Pakistani offer and aren’t prepared to jump into the bidding process owing to the US sanctions.

There have been contrasting reports with regards to Russian energy giant Gazprom, with the Russian hierarchy claiming that an offer for the $1.5 billion project has been tabled, while Islamabad continues to deny that claim. The general consensus, however, is that any firm or bank would be wary of upsetting Washington, since the West is the hub of most of global investment, and cutting oneself off from the fiscal hub would not be the most prudent of manoeuvres. This is precisely why for much of the past the Iran-Pakistan pipeline project has been more of a pipe dream, as the common solution to the respective predicaments of the two neighbouring countries looked odds-on to cave in amidst global adversity.

The only way Pakistan was ever going to be able to finance their half of IP was if either Islamabad managed to generate enough revenue to conjure up half a billion dollars from somewhere, or if Tehran somehow had that much cash to spare. And both options seemed impossible, until one of them actually transpired.

With Islamabad’s idea of digging itself out of the quagmire of gas shortfall being cutting off gas from CNG stations, gradually phasing out the CNG sector altogether and readjusting gas production price – courtesy Dr Asim Hussain – Tehran’s idea of pulling the rial back up from its freefall is through enhancing its dealing with the countries that have managed to dodge the US stick in one form or the other. Given the Washington-Islamabad love-in, or lack thereof, in the recent past, the fact that Pakistan could manage to creep into this list under any circumstances actually shatters the ‘ironicometer’.

As the ante has been upped on Iranian sanctions, Iran’s oil production has decreased to 2.63 million barrels per day (bpd) – from a budgeted crude output of 4 million bpd – even though Tehran had actually targeted exporting 2.74 million bpd. And the numbers are prognosticated to fall below a million barrels of crude output a day considering the number of countries that are following the US sanctions.

Tehran’s initial course of action to bridge the fiscal deficit via tax revenue hike, but that has not materialised. Furthermore, the endeavour to increase the efficiency of the state sector and reduction in state expenditure hasn’t quite been achieved by the Iranian hierarchy; therefore, Tehran’s last resort is to beef up the trade numbers with the countries that are still seeing it as a viable trade partner. This is why barter trade involving agricultural products like wheat, urea, rice, etc and informal trade of petroleum products between Islamabad and Tehran have been upped, with both countries eying the $10 million mark for bilateral trade. Projects like Taftan-Quetta power transmission line, construction work of Quetta-Taftan Highway Railway track, Gwadar power supply project, etc, are also an integral part of strengthening the bond between the two countries as they try to help dig each other out of their respective fiscal dilemmas.

With the price of IP gas $11 per MMBTU for Iran and an addition of 750 million cubic feet of gas per day – leading to 1 billion cubic feet per day – for Pakistan, IP not only soothes Tehran’s economic nerves and Pakistan’s gas troubles it would represent something a lot more. It could symbolise breaking the American shackles for both the countries; it could mean Pakistan finally grabbing the gauntlet that has been there for the taking for a while; it could result in big guns like China and Russia finally taking a leap of faith and making their presence felt in the region – IP could be the emblem of a geo-political reshuffle in South Asia.

However, for that to happen, Pakistan would need to stop its much protracted procrastination and take a leap of faith of its own. They now have the finances to construct their side of IP and a growing trade partner, all they need is decisiveness and resolve and many a trouble would be curtailed with one pull of the proverbial trigger. On the contrary, if Islamabad continues dillydallying, IP would remain what it has seemed like for long: a pipe dream.

The writer is Editor, Business/City (Karachi), Pakistan Today. Email: [email protected] Twitter: @khuldune