03-24-2007, 05:30 PM
Pakistanis get the Heebie-Jeebies <!--emo&:flush--><img src='style_emoticons/<#EMO_DIR#>/Flush.gif' border='0' style='vertical-align:middle' alt='Flush.gif' /><!--endemo-->
[center]<b><span style='font-size:21pt;line-height:100%'>Handle pipeline politics cautiously</span></b>[/center]
Another snag has cropped up in the Iran-Pakistan-India (IPI) project, which must be handled carefully. India has threatened to pull out of the $7 billion dollar gas pipeline project if Islamabad does not bring down the transit fees it wants to charge for allowing the pipeline to pass through its territory to India. The pipeline is going to be 1,036-km long inside Pakistan and the task of looking after it will be Islamabadâs. It will pass through areas that will have to be âtamedâ at great developmental expense and careful political bargaining with local stakeholders.
Normally, the middle or transit country has the upper hand in negotiations, but this power of leverage depends on how badly the consumer country wants the gas. If Pakistan wants the Iranian gas more than, or as much as, India does, then Pakistan doesnât have much leverage. But if India needs the gas for energy more than Pakistan and canât get it from anywhere else, then Pakistan can talk tough. From the start, however, India has postured as if it does not need the pipeline, and there was a reason for that.
When Iran began to think of supplying gas to Pakistan and India, the Indo-Pak equation was bad. India was moving towards a special relationship with the United States that didnât want Iran to get the project through. India was also thinking of relying on liquefied natural gas (LNG) and had a naval fleet ready for it. It thought that it could get Burma to pipe its gas to India via the narrow territory that joins the northeastern union territories to India.
India also knew that Pakistan wished to offset its expenditure on the purchase of gas from Iran by charging a significant rental from India. It was confirmed in its suspicions because all kinds of exaggerated and unrealistic rental fees were being discussed in Pakistan at the highest levels. Figures of up to US$ 1 billion a year as transit fees were once quoted by the Pakistani energy minister in the early 2000s, whereas a more realistic estimate would be a fraction of that. An impression was also created on India that Iran would be willing to sell gas only if it got the big Indian market; and that Pakistan would be willing to get the big project going only if it were a transit country and not a major consumer too. However, it has taken the gas pipeline project nearly six years to come to this stage. Now Pakistan is acutely short of energy like India and both are in line to become consumers. Thus the transit fee element should be of low significance in all cost equations.
Nonetheless, all these factors have ultimately fed into the negotiating process in the settlement of a price with Iran. But the settling of a transit fee should not be a big problem since rates of such rentals are in evidence wherever there are pipelines. The only problem is a snag over the conditions that have allowed the transit country to charge high rentals in one case and low ones in others. An India official said in New Delhi that international pipeline projects normally have a transportation tariff of $0.50 per million British thermal units (BTU) while Pakistan wants $1.57. Therefore India says the fee proposed by Pakistan will raise the cost of gas for India by about $1.50 per BTU.
Pakistan has to look at the international practice very carefully. At the same time it must keep its leverage vis-Ã -vis India in mind. It will not do to say that it is prepared to be the sole end-user of the gas if India does not accept its transit fee unless it can be sure that Iran will not react too negatively to losing India as a bigger consumer. More importantly, international fee structures should be carefully compared since there are bound to be differences in them.
Russia supplies about 8 percent of Ukraineâs annual gas requirements. This gas has in recent times been supplied at heavily subsidised prices â about US$50 per 1,000 cubic meters compared to the market rate of about US$230 per 1,000 cubic meters. Note, however, that Ukraine charges Russia transit fees for the gas that Russia sends through the Ukrainian gas pipeline network to Western customers. (When the price goes up the rental goes up too.) The transit fees were taken in the form of gas, with Ukraine taking 15 percent of the gas passing through its pipes. Other pipelines may have different methods of recovering pipeline rentals.
The Iranian pipeline is important for both India and Pakistan. India as the big regional market needs as many sources of supply as it can get. Therefore, despite the uncertainties with Iran, India must not pass up the chance of getting its gas from the west. It has lost the Burmese gas to China after investing a lot of hope in it. As for LNG, the cost of gas transported by sea goes up by 30 percent and should be incurred only if Pakistan cannot be trusted. Meanwhile, anyone familiar with Pakistanâs coming energy crisis knows that Pakistan needs the gas as much as India.
Under the circumstances, Pakistan and India must not take entrenched positions on the pipeline rental. International fee structures are not much help because they are different in different situations. Pakistan must compute its cost of looking after the pipeline carefully in consultation with India. And no one should be seen as taking the other for a ride.
Cheers <!--emo&:beer--><img src='style_emoticons/<#EMO_DIR#>/cheers.gif' border='0' style='vertical-align:middle' alt='cheers.gif' /><!--endemo-->