06-29-2005, 04:08 AM
<b><span style='font-size:14pt;line-height:100%'>Pipeline or pipe dream?
Dr Farrukh Saleem</span></b>
http://www.jang.com.pk/thenews/jun2005-dai...005/oped/o2.htm
<b>Iran would love to sell some of its 79 billion cubic meters of gas to India. India, growing at a robust 7 percent a year, would love to buy cheap Iranian gas. Pakistan, in the middle of Iran and India, would love to let the pipeline pass through Balochistan and make up to half a billion dollars a year in transit fees.
So, where is the hitch?</b>
To begin with, there is the Iran Libya Sanctions Act (ILSA) of 1996. The Act allows the President of the United States to "penalise any company that invests more than $20 million per year in Iran's energy sector." The Act has an "extra-territorial" affect as it can penalise both Iran and any third nation or a corporate entity that violates the Act.
<b>For the record, the cost of the triangular deal is estimated at a colossal $4 billion (or more). The proposed pipeline passes through a quake-prone zone and shall, therefore, require an extraordinarily high degree of civil, chemical and information technological skills. Iran, India and Pakistan do not have the requisite skills and thus cannot execute the project without Western, Australian, Japanese or Russian participation. Russian companies may have the technology but not the financial resources. ILSA, in the meanwhile, prevents all foreign companies from using American licenses or patents. Additionally, most European credit agencies do not cover Iranian risks. European companies interested in Iran would thus have to seek private sector political risk insurance coverage, which would in turn increase the cost of doing business in Iran.
India, the end user, is not without her own reservations. "Security of supply" through restive Balochistan, arguably a narcotics heartland, was India's top concern before Iran stepped in to "guarantee supply" (even on the Pakistan-section of the pipeline). But, can Iran-or a consortium-actually guarantee supply through a third country? Influential quarters within India continue to insist that as India controls the headwaters of rivers, Pakistan may end up using the gas pipeline as a potent bargaining chip for concessions over water (and also over Kashmir).</b>
The other stumbling block is Iran's constitution that allows buy-back contracts and explicitly forbids profit sharing. International investors, with the risk of investing in Iran, would be more interested in a profit sharing rather than a buy-back contract. It is highly unlikely that the Ayatollahs will be wiling to amend the constitution for the sake of the pipeline.
To be certain, Iran's proposition of a 2,600-kilometer gas pipeline-if it ever gets built-will be one of the greatest engineering undertakings of the 21st century. Four billion dollars cannot be raised without Western participation and the actual construction poses an engineering challenge for which neither Iran nor India have the expertise.
<b>Can both India and Pakistan defy the hyperpower and stand up to ILSA? May be one of the two can, and even if they both decide to defy, they still cannot execute the project on their own (so why defy?).
The Iran-Pakistan-India tripartite gas pipeline is a pipe dream whose time hasn't yet come.</b>
<i>The writer is an Islamabad-based freelance columnist
Email:</i> farrukh15@hotmail.com
Cheers
Dr Farrukh Saleem</span></b>
http://www.jang.com.pk/thenews/jun2005-dai...005/oped/o2.htm
<b>Iran would love to sell some of its 79 billion cubic meters of gas to India. India, growing at a robust 7 percent a year, would love to buy cheap Iranian gas. Pakistan, in the middle of Iran and India, would love to let the pipeline pass through Balochistan and make up to half a billion dollars a year in transit fees.
So, where is the hitch?</b>
To begin with, there is the Iran Libya Sanctions Act (ILSA) of 1996. The Act allows the President of the United States to "penalise any company that invests more than $20 million per year in Iran's energy sector." The Act has an "extra-territorial" affect as it can penalise both Iran and any third nation or a corporate entity that violates the Act.
<b>For the record, the cost of the triangular deal is estimated at a colossal $4 billion (or more). The proposed pipeline passes through a quake-prone zone and shall, therefore, require an extraordinarily high degree of civil, chemical and information technological skills. Iran, India and Pakistan do not have the requisite skills and thus cannot execute the project without Western, Australian, Japanese or Russian participation. Russian companies may have the technology but not the financial resources. ILSA, in the meanwhile, prevents all foreign companies from using American licenses or patents. Additionally, most European credit agencies do not cover Iranian risks. European companies interested in Iran would thus have to seek private sector political risk insurance coverage, which would in turn increase the cost of doing business in Iran.
India, the end user, is not without her own reservations. "Security of supply" through restive Balochistan, arguably a narcotics heartland, was India's top concern before Iran stepped in to "guarantee supply" (even on the Pakistan-section of the pipeline). But, can Iran-or a consortium-actually guarantee supply through a third country? Influential quarters within India continue to insist that as India controls the headwaters of rivers, Pakistan may end up using the gas pipeline as a potent bargaining chip for concessions over water (and also over Kashmir).</b>
The other stumbling block is Iran's constitution that allows buy-back contracts and explicitly forbids profit sharing. International investors, with the risk of investing in Iran, would be more interested in a profit sharing rather than a buy-back contract. It is highly unlikely that the Ayatollahs will be wiling to amend the constitution for the sake of the pipeline.
To be certain, Iran's proposition of a 2,600-kilometer gas pipeline-if it ever gets built-will be one of the greatest engineering undertakings of the 21st century. Four billion dollars cannot be raised without Western participation and the actual construction poses an engineering challenge for which neither Iran nor India have the expertise.
<b>Can both India and Pakistan defy the hyperpower and stand up to ILSA? May be one of the two can, and even if they both decide to defy, they still cannot execute the project on their own (so why defy?).
The Iran-Pakistan-India tripartite gas pipeline is a pipe dream whose time hasn't yet come.</b>
<i>The writer is an Islamabad-based freelance columnist
Email:</i> farrukh15@hotmail.com
Cheers