Iran Can Fine Pakistan $18 Billion For Delaying The Construction Of a Pipeline Project

Iran has asked Pakistan to construct a portion of the Iran-Pakistan (IP) gasoline pipeline project in its territory till February-March 2024 or be ready to pay a penalty of $18 billion. Under the agreement, Pakistan is bound to pay $1 million per day to Iran from January 1, 2015, under the penalty clause. And in case Iran moves an arbitration court, Pakistan would have to pay billions of dollars as a penalty.

Iran informed a visiting Pakistani official, a few weeks ago, a delegation that the US sanctions on Iran are illegal and Pakistan should construct the gas pipeline in its territory by February-March 2024 as stipulated in their revised agreement, a senior official at the Ministry of Energy told The News. 

Iranian authorities said that the US sanctions on Iran were illegal and Pakistan, under the revised agreement, was bound to erect the pipeline in its territory till February-March 2024. Iran had already completed part of the pipeline in its own territory from the gas field to the Pakistan border.

The Inter-State Gas Systems (ISGS) of Pakistan and the National Iranian Gas Company (NIGC) inked a revised agreement in September 2019 for the construction of the gas pipeline between the two countries.

Under the revised accord, Iran would not approach any international court if there was a delay in the construction of the pipeline, and neither would Pakistan pay any fine to Iran till 2024. Pakistan would be able to construct its pipeline by 2024 after which it would have an intake of 750 million cubic feet of gas from Iran daily.

Now under the latest scenario, the official said, Iran reminded Pakistan about the completion of the project by February-March 2024.

When contacted, a spokesman for the petroleum division admitted that a Pakistan delegation visited Tehran recently, but he opted not to disclose any information about the outcome of the visit.

Earlier, the officials said, Tehran had formally given a notice to Islamabad in February 2019 for moving an arbitration court for not laying down the pipeline in Pakistan’s territory in the stipulated time period under the IP gas line project and threatened to invoke the penalty clause of Gas Sales Purchase Agreement (GSPA).

The GSPA was signed in 2009 for 25 years, but the project could not get shape. Almost 12 years have passed since the signing of the agreement, and the three-year construction period for the pipeline in Pakistani territory has been wasted. Under the agreement, Pakistan was supposed to lay down in its territory a pipeline of 781 kilometers from the Iranian border to Nawabshah under the GSPA.

The project was to be implemented under a segmented approach meaning that Iran had to lay down the pipeline on its side and Pakistan had to build the pipeline in its territory. The project was to be completed by December 2014 and become functional from January 1, 2015.

On the other hand, Pakistan is considering shifting the ‘starting point’ of Russia’s Pakistan Stream Gas Pipeline from Karachi to Gwadar, a move likely to help resume work at the abandoned LNG Gwadar Pipeline Project that connects with Iran.

In 2015, Pakistan and Russia signed an Inter-Governmental Agreement to execute the North-South gas pipeline project which was later renamed the ‘Pakistan Gas Stream Project’ to transport LNG from Karachi to Lahore. According to the initial model, Russia was to provide 85% funding whereas Pakistan was to provide 25%.

At the moment, there is no LNG available for Pakistan and therefore, there may be no benefit in building an LNG pipeline, officials stated, adding that the second LNG terminal was also currently being run on lower capacity due to the non-availability of LNG in the global market. Pakistan LNG Limited (PLL), a state-owned company, had tried its best to strike an LNG deal but no party had shown interest.

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