T H E IRAN-

PA K I S TAN-INDIA
P I P E L I N E PROJECT:
C R O S S -BORDER
G A S PIPELINE
C H A LLENGES
A case study prepared for the International Gas
Union’s Gas Market Integration Task Force.

1
 For Iran, the benefits of gas exports via pipeline
The Iran-Pakistan-India to India include: 1) a major boost for job creation

Pipeline Project: Cross-border and economic prosperity of the provinces on the

pipeline route; 2) the enhancement of Iran’s
Gas Pipeline Challenges strategic positioning and standing both regionally
and on a global level; and 3) regional economic
With the second largest fossil fuel reserves in integration.1 For the key topic of gas market inte­
the world, Iran has enormous potential to serve gration, Iran therefore has centre stage with its
newly emerging gas importers such as Pakistan, massive resources and export potential to emerging
India and China by pipeline and markets markets nearby. However, despite all the potential
farther away by LNG. Just as Russia and Qatar for a deal on a long-planned pipeline from Iran to
have already embarked upon an expansion of Pakistan and India (the IPI pipeline), huge cross-
their export capabilities, Iran has the potential border barriers and uncertainties have so far put
to become a new supplier to both eastern and off the IPI project. It is common knowledge that
western markets. However, geopolitical issues, Iran holds the world’s second largest gas reserves,
Iran’s strategic intentions for LNG exports, after Russia. Yet a country such as Canada, with
escalating costs and a lack of clear leader-
ship and decision-making combine to make 1 N. Ghorban, “Op-Ed: Monetizing Iran’s Gas Resources and
the Debate Over Gas Export and Gas-Based Industries Options”,
the range of possible paths into the future
Middle East Economic Survey, vol. 49, no. 28, (July 2006),
numerous. pp. 25-29.

above and opposite Iran possesses the world’s second largest gas reserves with 15.7% of the global total.

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but one-seventeenth of Iran’s reserves, produces have no easy way of finding an outlet to an
nearly twice as much gas. Iran’s lower production already tight energy market. The market is thus
is due mainly to a lack of ade­quate planning, often forced to look for alternative means of gas
adherence to the old bureaucratic structure within market integration.
its fossil fuel industry and ineffective gas pricing. In addition, from a regional vantage point,
Countless initiatives and technical solutions have Pakistan and India would have to come to terms
been put forward over the past decades in an with the long-term dependency relationship which
effort to integrate these markets with Iran, yet none the IPI pipeline is bound to bring. The IPI project is
have been successful at getting the IPI pipeline past likely to continue to fail unless government-to-
the drawing board, despite favourable supply and government cooperation is firmly achieved. It can
demand projections. A major factor complicating only be achieved if the burdens of traditional
the overall equation is the geopolitical overhang, commercial, technical and environmental risks such
which usually accompanies these types of large- large-scale gas projects inherently impose on the
scale, cross-border gas projects. The case of Iran is potential partners are shared by all of them from
a particular conundrum both at a regional level as the outset. Even before this can be accomplished,
well a global one. From a global perspective, however, the geopolitical complexities involved will
Iran’s resources remain vastly underdeveloped have to be overcome on the basis of mutual trust
because of US and European sanctions designed and determination, and perhaps ultimately,
to limit Iran’s capacities to attract investments and through the sheer necessity imposed by the macro-
to “isolate” it, only ensuring that these resources economic fundamentals of import-dependency.

T he I ran - P akistan - I ndia P ipeline P roject 3

 small portion to be constructed overland through
the UAE; and 2) a pipeline from Iran to Pakistan,
i.e., the project currently on the table. In the former
case, a time limit imposed by Qatar for the allo­
cation of the gas came and went as the project
was delayed and ultimately shelved, despite sub­
stantial work which had been carried out on sur­
veys and design. The second option is now being
negotiated between Iran, Pakistan and India.
Although Pakistan and Iran signed an agree­
ment in 1995 for the construction of a pipeline to
bring South Pars natural gas from the Persian Gulf
to Karachi, new gas discoveries in Pakistan stalled
the project for a number of years. During the visit
of Pakistan’s Prime Minister to Iran in 2003, the
project was revisited and a bilateral Joint Working
This plant in Assaluyeh treats gas from the South Pars field.
Assaluyeh is also the origin of the IPI pipeline. Group (JWG) was formed to realise the project. An
overview of the project’s route (and that of the
l Historical background competing Turkmenistan-Afghanistan-Pakistan-
Before delving into some facts and figures on India pipeline) is provided in Figure 1.
supply and demand, it is instructive to review the It has long been a desire of the Iranian govern­
historical developments preceding the current ment to develop export markets for gas from the
setting, regarding the IPI market integration project. South Pars field. The problem in this respect has
The export of gas from the Gulf region to Pakistan always been a conflict of interest and strategies
was first considered in the early 1990s. Two pro­ within the Iranian energy establishment. Iran’s Oil
jects were initially put forward: 1) a Qatar-Pakistan Ministry and the Majlis (the Iranian parliament)
b e lo w

Figure 1. pipeline following an offshore route except for a Energy Committee have traditionally disagreed
over whether the country should become a major
regional and international gas exporter on the one
T he I P I and TA P I ro u tes
hand, or concentrate its gas resources mainly on
oilfield reinjection and the development of the
petrochemical and gas-based industries and other
domestic demand, on the other. A pipeline to the
Indian sub-continent offers a stable initial outlet for
Iranian gas prior to any further ventures as a major
gas exporter.
Hence the Iranian government filed a request
with the Pakistani government for extension of the
proposed gas pipeline to India. For Pakistan, the
pipeline offers badly needed gas supplies and
revenues from transit rights: 50% of the 22 bcm
per year would go to Pakistan and the other half
Source: US Department of Energy, Energy Information Administration.
to India.

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 The extension was acceptable to Pakistan, but it the pipeline goes through, compelled to do so by
took India more than a decade to digest the idea its own energy demand forecasts.
of gas transmission over the territory of Pakistan,
with which it has had various armed conflicts and l Iran’s gas resource base and potential
an as of yet unresolved dispute over the area of Iran holds the world’s second largest gas reserves
Kashmir. India does not feel entirely comfortable which, in 2007, amounted to 27.8 tcm or 15.7% of
with the idea of being dependent in the long-run the global total. A most favourable feature of Iran’s
on Pakistan. Thus even though there is an acute gas deposits is that around 62% are located in
shortage of energy and especially natural gas in non-associated gas fields and have not been
India, the Indian government still is not enthusiastic developed, meaning that the country has great
about entering into an agreement with Pakistan potential for future gas development.
regarding gas transit. India thus began looking at Iran’s greatest concentration of resources lies in
yet another alternative means of attaining Iranian the South Pars gas field. Geologically an extension
gas, through an offshore pipeline which would skirt of Qatar’s North Field, South Pars was first
Pakistani territory altogether. But after detailed identified in 1988, and originally appraised at
Indian field studies highlighted several technical 3.62 tcm in the early 1990s. Current estimates are
and geophysical issues, the offshore route was that South Pars contains 8 tcm or more (some
found to be unfeasible. estimates go as high as 14.2 tcm) of natural gas,
Despite Pakistan’s willingness to extend the gas of which a large fraction will be recoverable.2
pipeline to India, Pakistan has maintained that it A vital aspect regarding the future development
would proceed with the project even without India, of Iran’s energy potential is Iranian energy policy,
should the latter lose interest. As a result of which must cope with the domestic needs, balanc­
protracted negotiations, Iran and Pakistan signed a ing them with the various export options the
Memorandum of Understanding (MoU) in the government has. Many members of the Majlis
middle of 2005 to go ahead with the project. Since argue that, prior to undertaking any export
then there have been a number of meetings bet­ projects, domestic gas needs and oil field injection
ween delegates from Iran, Pakistan and India to must be satisfied first and override export options
iron out the problems and to reach an agreement if necessary, particularly because the Iranian
on the Gas Sales and Purchase Agreement (GSPA). govern­ment must take into account issues such
The Indians actively participated in various meeting as domestic economic development and unemploy­
of the IPI gas pipeline project initially, but they did ment. Iran is the largest consumer of gas in the
not attend any meetings on IPI from mid-2007 to Middle East and growth in consumption in the
March 2008. During this time, India was put under last two decades has been substantial: some
overwhelming US pressure to drop the GSPA as a 9-10% per annum since 1990. Those in favour of
civil nuclear deal with the US was being finalised. gas exports by pipeline and LNG argue that there
Meanwhile, in December 2007, Iran and Pakistan
initiated the GSPA, which included a provision to 2 In addition there are the 0.18 tcm, non-associated Khuff
add India further downstream at a later stage if (Dalan) reservoir of the Salman oil field (which straddles Iran’s
maritime border with Abu Dhabi, where it is known as the Abu
India ultimately desires to join the project. Pakistan Koosh field); the 22.65 bcm Zireh field in Bushehr province;
has also stated that it would be able to buy the gas the 0.11 tcm Homa field in Fars province; the 0.4 tcm Tabnak
field located in southern Iran, the 0.37 tcm Aghar and Dalan
volume allocated to India in the GSPA in case India fields in Fars province, and the Sarkhoun and Mand fields.
Iran has also discovered two new natural gas fields in the
is unable to join the project. There is hardly
Persian Gulf, one at Balal and the other beneath Lavan Island,
anything else Pakistan could have done to ensure possibly holding 0.2 tcm.

T he I ran - P akistan - I ndia P ipeline P roject 5

A f orecast o f I ranian de m and and industries including petrochemical and GTL projects
s u pply o f nat u ral gas , 2 0 0 0 2 0 2 5 for internal use and export; and 4) gas export by
pipelines and in the form of LNG.3 The Majlis
favours oil lifting, especially in a high oil price
environment. For Iran to be able to manage these
different choices effectively, he argues, Iran is in
need of an NOC for oil as well as gas production
such as Gazprom, Sonatrach and Qatar Petroleum,
as well as a gas ministry parallel to its oil ministry.
Iran has the potential to become a major driving
force not only in the international gas market but
also regionally within the Middle East and the
Persian Gulf region.4
The last winter period has further proven that a
more coherent and overall energy policy is
required in order to avoid situations involving a
above is a limit to gas injection and using gas domestic­ potential breakdown in contracted supplies to
Figure 2.
ally in Iran can only utilise less than 40% of its Europe, and in particular to Turkey. Some type of
reserves in the next 25 years. In addition, Iran “neighbourhood policy” could form the spearhead
incurs a signifi­cant opportunity cost by denying of Iran’s external energy policy, which could
itself a fully fledged role in the international manage energy relations with key potential
gas industry. customers and their regulators such as India and
In other words, Iran can use its gas resources Pakistan, but also with significant Central Asian
to develop a relative economic advantage. In exporters Kazakhstan and Turkmenistan, as far as
order to live up to its potential and make full use supply integration and transit is concerned. A
of every cubic metre it can export without sacri­ sound, state-to-state, realistic and geo-strategically
ficing domestic economic growth, Iran needs a underpinned orientation is essential for any would-
strategy that enables the country to free up export be Iranian energy policy. Figure 2 provides the
volumes. However, this will take some time, projected forecast on availability of natural gas for
according to Gholam Hossein Nozari, Minister export projects in Iran.
of Petroleum. As far as major green field investments are
Dr Narsi Ghorban has summarised four options concerned, Iran has the same path of possible
available to Iran for its gas resource development: development: a split between greenfield flows by
1) domestic use of gas, including power gener­ pipeline and by LNG. In mid-2008, however,
ation; 2) gas used for oil lifting; 3) gas-based Repsol and Shell abandoned their negotiations with

3 The economics of oil lifting and refining in Iran imply superior to 115 bcm to be used for oil injection by 2010, up from 31 bcm
profitability for gas usage vis-à-vis pipeline and/or LNG exports per year in 2006. A. Flower, “Natural Gas from the Middle East”,
of natural gas. IEA, World Energy Outlook 2005, (Paris: IEA/ in Natural Gas in Asia: The Challenges of Growth in China, India,
OECD, 2005), p. 365. In the case of oil lifting, most of the gas Japan and Korea, Stern, J. P. (ed.), 2 ed., (Oxford: Oxford
injected in oil fields can be recovered in the long run with the University Press, 2008), pp. 330-370.
production of oil. N. Ghorban, Op. Cit., (July 2006). Even then,
Iran will still have a massive 12 to 14 tcm for export after 4 As a matter of fact, Iran is finalising an agreement with Oman
covering domestic needs and gas re-injection for 50 or more to pump 28 mcm of gas to Oman and for the joint development
years. IEA, Natural Gas Information 2007, Paris: IEA/OECD, by Oman and Iran of Iran’s Kish gas field. Iran’s gas will be
2007, p. 144. Be that as it may, NIOC’s plans call for some 100 brought to Oman and liquefied there for export.

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Iran over the Persian LNG project because they developing regional gas pipelines, its energy plans
perceived the risk of US reprimands as too great to make no mention of or seem to take into account
move ahead with business in Iran. Finding private specific gas pipelines.
international, or in any case Western investors,
has been difficult and could prove to be in vain, l The potential routes of the IPI pipeline
in the end. The first phase of the project will have a design
capacity to carry 2.1 bcf/day (60 mcm/day) from
l Pakistan: primary energy demand the gas delivery point at Iran-Pakistan border,
forecasts planned to be commissioned in 2012. The volumes
For Pakistan, the need for the IPI gas pipeline are to be shared equally by Pakistan and India.
project is propelled by the huge deficit in energy, Under the auspices of the Iranian domestic energy
especially in the natural gas sector. Pakistan’s policy, the first section of the pipe in the Iranian
Planning Commission has prepared energy supply sector is to be executed as an IGAT-VIII project,
and demand forecast projections for the short, which is basically designed to supply gas to the
medium and long term, which forecast that the eastern provinces of Iran, supplying natural gas on
country will have to fill a natural gas supply gap of the express orders of the Majlis. The second phase
1.5 bcf/day (roughly 42.4 mcm/day) by 2013 (see of the project will increase the design capacity of
Figure 3). This is expected to be met by the the pipeline to 150 mcm/day by laying a second
proposed LNG terminal at Karachi and the first pipeline, planned to be commissioned in 2017.
phase of the IPI pipeline. By 2025 the supply- Pakistan’s share of the gas volumes would be some
demand gap is projected to amount to 10 bcf/day 60 mcm/day and India would receive 90 mcm/day.
(283 mcm/day). Given the proximity of large The pipeline in Iran is to start in Assaluyeh, from
natural gas reserves in neighbouring Iran, it would where it will run up to the Pakistan-Iran border,
thus be logical and understandable for Pakistan and will have a length of 1,157 kilometres. In
to establish a lasting bilateral relationship with 2006 Iran started construction of a 902-km,
that country. 56-inch diameter underground pipeline from
Assaluyeh to Iranshahr. Planners in Iran seem to
l India: primary energy demand forecasts
Given the fact that long-term supply and trade
5 IEA, World Energy Outlook 2007, (Paris: IEA/OECD, 2007), b e lo w
commitments are vital for covering the long-run p. 465. Figure 3.
costs of the pipeline, it is important to take India as
another potential customer for the pipeline into G as s u pply balance in Pakistan and the
account. India consumed some 44 bcm of natural v ario u s phases o f the I P I line , 2 0 0 7 - 2 0 2 5
gas in 2007, which represents some 15% of its
overall primary energy consumption. This figure is
projected to grow to some 143 bcm per year by
2025, accounting for 20% of India’s overall
primary energy mix, according to GAIL. According
to the IEA’s World Energy Outlook 2007, which
includes a special review of the Chinese and Indian
energy sectors, Indian demand could indeed reach
123 bcm by 2030 based on the IEA reference
scenario.5 Though India appears keen on

T he I ran - P akistan - I ndia P ipeline P roject 7

 have built extra capacity in this pipeline for that based on 2007 pre-feasibility studies, to be
purpose. It appears that in this first stage, the worked out in more detail depending on whether
56-inch diameter main transmission pipeline is any commercial deal and/or GSPA will be esta­
already being built in the province of Seistan. blished between commercial parties. How­ever, it
Iranian planning and design takes into account is esti­mated that the full cost of the overall project
future possible interconnection between this section for the three countries to produce pipeline quality
of the pipe and Pakistan and India. The pipeline gas in Iran and to build transmission and distri­
has a capacity of 3.2 bcf/day (90 mcm/day) and bution pipelines in India and Pakistan to bring the
about 40% of it was complete by the end of 2007. gas to their consumers will be more than three
Iran has already started planning to extend this times as much. This availability of energy will
pipeline by another 255 kilometres to bring it to attract huge invest­ments in industry and power
the Pakistan-Iran border where Iran expects to generation in both India and Pakistan, which they
deliver 2.1 bcf/day (60 mcm/day) of gas for will need in order to maintain their projected
Pakistan and India in the first phase. economic growth.
Pakistan has done extensive work to identify a
suitable corridor to lay this pipeline over its terri­ l The IPI pipeline project: investors
tory, and is currently working on a route which and funding
traverses the Balochistan Province coastline and Initially, the plan was to have an international
passes near the city of Nawab Shah before reach­ holding company with an internationally led
ing the Pakistan-India border. The first section from sponsor for the construction of the entire length
the Iran-Pakistan border to Nawab Shah will be of the pipeline. This attracted many major
795 kilometres long with a capacity of 2.1 bcf/day companies and joint ventures including BHP,
(60 mcm/day). Nawab Shah is the off-take point Petronas, Total, Shell, British Gas, Gazprom and
for the contracted gas volume for Pakistan where it a joint venture of Iranian gas companies. It has
will be connected to the existing gas network. If now been decided that the three countries will
India decides to participate in the end, Pakistan will own and build the portions of the pipeline in their
lay a second section of 240 kilometres from respective countries, which may have local and
Nawab Shah to the Pakistan-India border having a international partici­pation in one form or another.
design capacity of 1.05 bcf/day (30 mcm/day), This segmented approach was designed to avoid
which is to be provided to India under the agree­ having to put together funding for one single
ment. From the delivery point for gas allocated to large project, which in turn would have required
India at the Pakistan-India border, a pipeline will funding from inter­national institutions. As such,
be laid to connect it to the existing Indian gas one of the project’s main hurdles has been
network (see Figure 4). funding from major dev­elopment banks, whose
In a nutshell, the required financing to complete policies tend to go hand-in-hand with US foreign
the IPI pipeline segment which Iran will construct and development policies, meaning access to
(1,157 kilometres) amounts to an estimated cost of funding is subject to political conditions, which
$3 billion. The Pakistani segment of the pipeline, is something all three countries involved wish
having a length of 1,035 kilometres, is estimated to avoid.6
to cost $2.2 billion. India must construct 300
kilometres at an estimated cost of $0.65 billion 6 The September 2008 credit crisis and the subsequent global
financial market crisis are likely to further limit the role of
through its own territory to connect to its existing
international institutions and will make it more difficult for
gas pipeline network. The figures given are all individual players to attain financing.

8 T he I ran - P akistan - I ndia P ipeline P roject

l The IPI stakeholders Company (SSGC) and Sui Northern Gas
The stakeholder relationship involved in the Pipelines Limited (SNGPL), the two public sector
potential IPI pipeline is complex, each party having gas utilities in Pakistan. SSGC and SNGPL own
its own proper ownership structure. Besides the 51% and 49% of ISGS, respectively. ISGS is
governments of Iran, Pakistan and India, the negotiating the GSPA from Pakistan’s side.
following stakeholders are involved in the nego­ l Gail India Limited (GAIL), which is a major gas
tiations for the IPI gas pipeline either directly utility in India, is negotiating the GSPA on its
or indirectly: side and would also own and operate the
l The National Iranian Oil Company (NIOC), Indian part of the IPI pipeline besides being the
which owns the gas fields in Iran, is negotiating beneficiary receiving the gas.
a GSPA through its subsidiary, National Iranian Any attempt to construct a new pipeline, and/or
Gas Export Company (NIGEC). The IPI pipeline new interlinking projects with Pakistan and/or India
segment in Iran will be owned and operated by cannot be finally deemed feasible unless all energy
the National Iranian Gas Company (NIGC), policy frameworks are agreed to between the seller
another subsidiary of NIOC. and the buyer. Most large-scale energy deals are
l The Government of Pakistan has created a seen as part of a high-level, bilateral government-
special purpose company called the Inter-State to-government (G-to-G) agreement, followed
Gas System (ISGS) to handle the import of subsequently by a business-to-business (B-to-B)
natural gas in Pakistan. ISGS is a wholly-owned execution of the agreement. Thus these B-to-B
subsidiary company of Sui Southern Gas deals always link up to so-called G-to-G deals.

left

T he I P I gas pipeline project, phase 1 Figure 4.

T he I ran - P akistan - I ndia P ipeline P roject 9

 It is remarkable to note that despite the fact that first pro-US exit valve for Central Asian oil and gas
there is no B-to-B deal underpinning the project while, since 9/11, Afghanistan now offers the
yet, the pipeline is already under construction in second. With a pro-US regime in place in
Iran, nearing the border with Pakistan, which is Afghanistan, the US can “comfortably” control one
quite unlike the typical GSPA contracts which of the most important potential gateways for
require commercial agreements long before energy flows from Central Asia to emerging
actual construction begins. economies such as India and China. At the same
time, the US invasion of Iraq appears to have been
l The broader geopolitical context a manoeuvre to secure a long-term strategic
In discussing the complexities surrounding IPI position in the Gulf region (with Iraq known to
pipeline on a regional, bi-lateral and tri-lateral have the largest un-explored oil reserves in the
level, it is hard to do so without mentioning the world).
broader geopolitical context, at the heart of which Having said the above, it is clear why Iran is a
lies Iran, and America’s geopolitical strategy to major threat to US policy: Iran dominates the
deal with it. Persian Gulf region and has gained enormous
During the Cold War, US strategy was reactively regional influence. From an American point of
concerned with containment of the Soviet threat, a view, it casts a long shadow over the Strait of
policy which was given a renewed push during the Hormuz, which is a crucial passage for some 40%
Reagan years and finally led to the collapse of the of the world’s oil flows (the US navy intensely
Soviet Union as a capable adversary. This policy patrols the Strait as well as the Gulf). Ever since the
consisted of building and developing relationships 1979 Iranian revolution US-Iran relations have
with key allies in an arc around the Soviet Union, been tense, at best, and diplomatic relations non-
stretching from Europe to the Middle East and on existent. Iran is considered by the US to be a major
to the Pacific and Japan. Since the collapse of the threat to its interests and therefore the US
Soviet Union, however, America’s strategy has maintains economic sanctions against Iran.7
become more proactive. In the early 1990s, there As regards the IPI pipeline, it thus becomes
no longer was a major, singular geopolitical threat understandable why the US strongly objects to the
such as the Soviet Union; indeed, there was ample building of the IPI pipeline and Pakistan’s and
opportunity to expand US influence in the vacuum India’s dependence on a state the US deems as
left by the collapse of Russia’s influence. Central hostile to its interests. Already mentioned above is
Asia quickly became a focal point for American the isolation policy towards Iran, a major obstacle
foreign policy during the 1990s, an area which to the IPI project, especially as far as funding is
was now open to the outside world and was, next concerned. One cannot escape the geopolitical
to Western Siberia, the Soviet Union’s main
production area for oil (mainly Kazakhstan) and 7 These sanctions were further tightened in 1995 by the Clinton
gas (mainly Turkmenistan). Administration under the Iran Libya Sanctions Act (ILSA), which
was aimed at Libya on the same grounds, namely that it funded
The freeing up of oil and gas resources in this terrorist organisations. In 2006, Libya was no longer seen as a
region became the centre of a wider American threat and was thus moved from sanctions list but the Act was
extended to 2011 and remained applied to Iran (it was thus
campaign to secure oil and gas flows from it. Thus renamed the Iran Sanctions Act). The original reasoning behind
the new American strategy became focused on the Act was that sanctions would curb the strategic threat posed
by Iran by hindering its ability to modernise its petroleum sector.
securing energy routes and securing the necessary American and foreign firms were thus basically barred form
investing in Iran. See http://fas.org/sgp/crs/row/RS20871.pdf and
countries in a US sphere of influence. The
Energy Information Administration, Iran: Country Analysis Brief,
Azerbaijan-Georgia-Turkey corridor became the (Washington DC: US Department of Energy, October 2007), p. 4.

10 T he I ran - P akistan - I ndia P ipeline P roject

realities of the energy business and geopolitical Afghanistan could potentially have negative
factors should be factored into to large-scale, effects on a possible long-term relationship
cross-border energy projects as busi­ness as usual . between Iran and Pakistan, in addition to
Although geopolitics is not the subject of this regional instability.
article, geopolitical issues have their bearing on l The differing politico-economic and social
an already difficult relationship. The discussion is characters of the countries involved add their
incomplete without their mention and they continue weight to tensions between them, while all three
to remain directly and/or indirectly the major countries have to deal with significant internal
cause of delays in the completion of the nego­ strife and instability (e.g., poverty and social
tiation round of the IPI pipeline and other agree­ discontent, etc.).
ments related to the GSPA. These are bilateral and l Pakistan’s refusal to accept India’s hegemonic
multilateral relationships between Iran and attitude towards its neighbours.
Pakistan, Iran and India and Pakistan and India. l Last but certainly not the least, is the tense
In these bilateral relationships, account must be relationship between Pakistan and India over the
taken of broader geopolitical issues such as border region of Kashmir, a strategically sensi­
the following: tive region to which both lay claim (owing to the
l Iran’s ability to directly influence factors on the legacy left by the British at the time of their exit
ground in Iraq so as to make life difficult for US from the Indian sub-continent). From a politico-
forces gives it a new role in the Persian Gulf religious standpoint, it should be mentioned that
region and Southern Asia. Kashmir’s largely (95%) Muslim population is at
l The US-led, NATO war in Afghanistan, which of odds with India’s Hindu population, leading to
course is mostly centred on energy interests and deeper tensions across the board.
on the geo-strategic positioning of the US and
its allies for the long run. If it should be l The importance of government-to-
successful, Afghanistan could become part of a government relations
safe route for energy flows from the Caspian Given the aforementioned difficulties, it is under­
region and Central Asia, which would then go standable why a preliminary G-to-G framework is
on through the Baluchistan province of Pakistan essential for the success of the IPI pipeline. Not
to the Arabian Sea. only does it take state-backed efforts to overcome
l Iran’s efforts to play a role of its own in immense cross-border risks, state-backed efforts
Afghanistan with the help of Afghan tribes and are also necessary to tackle broader regional
warlords sympathetic to Iran. tensions and prevent them from sabotaging a
l Russia’s Gazprom and France’s Total have been project in which all parties involved have a
among several parties willing to invest common interest. From a historical per­spective,
nevertheless in Iran’s upstream potential. it is obvious that all kinds of technical initiatives
l US pressure on India not to go ahead with the have been made and put on the table, various
IPI project in view of the civil nuclear agreement options for a pipeline that could provide Iran with
being offered to alleviate India’s energy regional export markets and security of demand,
problems. on the one hand, and security of supply for
l Nevertheless Iran has to deal, in the short term, Pakistan and India on the other. Given the
with scarce investment capital and an unattrac­ difficulties experienced in the past, it would seem
tive buy-back system of contractual arrange­ that a more gradual, step-by-step approach should
ments. Pakistan’s role in the US-led war effort in be considered as a way forward for the IPI. Past

T he I ran - P akistan - I ndia P ipeline P roject 11

 successful examples of cross-border pipeline requires time and patience. Currently, the project is
projects across the world reflect the fact that stalled because of a lack of political will and
starting negotiations on a bilateral G-to-G basis disagreements over transit tariffs and feed gas,
first maximises the chances of success for more even though Pakistan and India, for example, have
complicated projects. already agreed on a broad range of issues after
In this context, typical energy supply and transit technical-level talks, subsequent to ministerial
issues such as transmission tariffs, border-crossing parleys which claimed to have reached consensus
issues, fuel mix support, energy efficiency, etc., are on basic issues.
best dealt with in an initial Pakistani-Iranian
G-to-G relationship and discussion, before poten­ l Broader, regional gas market integration
tially expanding the relationship to include third The issue of gas market integration is relevant not
parties. When all the most important issues have only to the case of Iran, Pakistan and India, but
been dealt with at a state-to-state level, then the also to the vast region including the Central Asian
necessary foundations will have been laid to producers and Iran, on the one hand, and India
proceed with the B-to-B relationship between the and China on the other. At one end of the region
national companies, the GSPA on the part of there are major potential gas exporters to Eastern
NIGEC being an initial step. Both governments Asia, namely Kazakhstan, Uzbekistan and
could then meet regularly to support and further Turkmenistan, whose export potential can be
develop B-to-B activities in order to emphasise their channelled through Afghanistan and Pakistan to
political willingness to hammer out an energy East Asian markets. There is thus extensive
relationship. Iran maintains that IPI is a supply potential for trade and win-win situations for both
contract; therefore there is no requirement for producers and consumers, despite the geopolitical
allocation of certain blocks of the South Pars gas problems involved. The IPI case demonstrates that
field and no requirement for Iran to supply gas starting from a simple outset; a producer and
from South Pars or from elsewhere depending on supplier need to agree on a G-to-G framework
Iran’s domestic supply and demand balance as first, with regulatory agreements put into place at
well as other contracts. All parties did agree in the this crucial stage.
initial stages on the gas volumes and Iran also So, for example, Iran and Pakistan come to an
allocated certain blocks from the South Pars field, agreement first, before integrating their own
but with the passage of time Iran kept changing its systems into neighbouring countries as import and
stance on the allocation of blocks, citing its diffi­ transit needs rise. In a next step, the Central Asian
culties and delays in negotiations related to the producers likewise can link their infrastructure to
IPI pipeline. Iran now maintains that it would that of Iran (or expand existing infrastructure
guarantee the supply of gas for the duration of between Turkmenistan and Iran),8 so that eventu­ally
the contract. gas can be exported to East Asian markets through
The IPI pipeline is a regional project involving Iran. Thus gas market integration involves not only
cross-border commercial issues and barriers. the IPI stakeholders but also the neigh­bouring
Stable and predictable energy relations founded on countries in the Central and South Asian region.
and rooted in a mutual recognition of the immense This scenario is what comes to mind when
common benefits to be gained are a vital pre-
condition for success. Only then can most of the 8 In late September 2008, the Islamic Republic News Agency
(IRNA) reported that Iran and Turkmenistan were finalising a deal
barriers to cooperation be removed, but the hard
over their gas price-setting mechanism with Iran seeking to import
reality is that this will not happen overnight, it 9 bcm from Turkmenistan in 2009, up from 6 bcm in 2007.

12 T he I ran - P akistan - I ndia P ipeline P roject

considering the proposed, US-backed Turkmenistan- scratch, regardless of any of the geopolitical
Afghanistan-Pakistan-India (TAPI) pipeline. How­ 9
obstacles involved. Security of gas supply is
ever, on this issue, Russia’s Gazprom maintains another area which is heavily influenced by
that the gas being proposed to be transmitted technical, legal and political issues and needs
through TAPI pipeline is in fact owned by Gazprom to be understood clearly by the seller, the buyer
through its agreements with Turkmenistan. and the transit country operators. Contractual
agree­ments do provide remedies in terms of
l Conclusion penalties but these appear to be so huge that
The important lessons learnt from the trilateral instead of providing comfort, these open a
negotiations on the IPI pipeline reflect variance in Pandora’s Box of dispute resolution and arbi-
legal, institutional, economic and trade laws and tration which in itself is a time-consuming and
practices prevalent in the three countries. Above expensive process to undergo. This brings us to
all, the project highlights the complexities of cross- the impor­tance of regional stability concerning
border pipeline projects, ranging from a macro institutional and economic aspects. All three
view in which geopolitical forces play a role to a countries have state companies which act as
micro view where cross-border technicalities and agents on behalf of the state, the equivalent of
regulatory issue play a role and, ultimately, how Independent System Operators (ISOs) in the
these complexities influence the choices made by European market.
the parties involved. The IPI gas pipeline has thus It is obvious that the region of Southern Asia is
suffered delays common to most other cross- fraught with geopolitical obstacles to such a large
border pipelines. These were mostly due to time project as the IPI pipeline. While none of the
taken by the three negotiating parties to under­ countries involved exhibit any form of dependency
stand each other’s legal frameworks governing on one another except for bilateral trade, the
energy trade, laws that govern arbitration and necessity in the gas industry of long-term agree­
disputes, policies of the regulatory bodies over­ ments, which rest on stability and pre-arranged
seeing the energy business and pricing mech­ commercial parameters, confronts these sovereign
anisms for oil and gas products in each country. nations with issues they are not accustomed to
These issues become very important because of dealing with. This is primarily the case because of
the bills which promptly become payable in accor­ the nature of gas pipelines, which bring long-term
dance with contractual agreements; especially dependency and involve both suppliers and
when these bills run into the billions of dollars. consumers in an almost inescapable relationship.
No seller would like to suffer a delay in its Broader geopolitical and regional political
payments and no buyer can afford a resultant problems are thus bound to affect pipeline nego­
suspension of energy supply. tiations because of dependency as well as transit
In essence, the nature of the difficulties faced by issues. Nevertheless, there is a need to develop
all parties involved underlines the fact that all of standard formats and a modus operandi to avoid
them, the supplier being Iran and Pakistan and disputes and to enhance security of supply for the
India being the potential buyers, are operating in sale and purchase of energy under the umbrella
an embryonic market for gas in the region in of international protocols. Ultimately, this should
question, thus the whole project has to start from help to improve natural gas market integration,
which would help to promote economic develop­
ment in the region and ultimately, in turn, social
9 The TAPI pipeline would be financed by the Asian
Development Bank. well-being.

T he I ran - P akistan - I ndia P ipeline P roject 13