ISLAMABAD - Islamabad is contemplating to kick-off construction work on 80 kilometre portion of Iran-Pakistan gas pipeline project — from Iranian border to Gwadar — to escape a potential penalty of $18 billion, in case Tehran decided to move to the Paris-based International Arbitration for non-execution of the project. It has also been decided that Pakistan will submit an application to seeking waiver of US sanctions for the IP project, an official source from the Ministry of Energy told The Nation.
Initially it has been decided that in first phase of IP project work on 80-km portion from Pak-Iran border to Gwader will be started, the source said. The estimated cost of the 80-km Pak-Iran border to Gwadar portion of the project will be $158 million and it has been decided to fund it through Gas Infrastructure Development Cess (GIDC). Giving the detail, the official said that the agreement for the project was signed, for supplying of gas of 750 MMCFD for 25 years from South Pars gas field of Iran and delivery at Pak-lran border, in May 2009.
Under the project, 1,931-km line will be laid for transportation of Iranian gas to Pakistan, including 1,150-km long pipeline within Iran and 781-km within Pakistan. Both the countries were required to implement the project in their respective territories. As per the agreement, the project was to start supply by January 2015. Iran has already completed construction of over 900-km within Iran, while the remaining segment of 250-km is yet to be constructed.
In December 2012, the Government of Iran had proposed to provide financing for the project as well as EPC contractor under the government to government agreement. However, the Iranian government unilaterally backed out from G-to-G agreement in March 2014. Pakistan, therefore, served the Force Majeure and/or Excusing Events Notice under the IP-GSPA to National Iranian Oil Company (NIOC). Accordingly, the project activities have been halted. Iranian company NIOC served a notice of Material Breach of IP-GSPA obligations as well as a notice under the Sovereign Guarantee issued by Pakistan in favour of NIOC in February 2019.
The matter was negotiated with Iran and both sides agreed to extend the time for five years under the French Civil Code. Accordingly, the amendment agreement to the GSPA was signed in September 2019. Iran informed Pakistan that further extension of time under the French Civil Code would be subject to substantial progress by Pakistan on the project within next three months else Iran would be constrained to refer the matter to international arbitration.
On December 21, 2023, NIOC served a Material Breach Notice to Pakistan’s Inter-State Gas Limited alleging material breach of buyer’s warranties. Through the same notice, NIOC has served a notice pursuant to the Sovereign Guarantee issued by Government of Pakistan in favour of NIOC. NIOC gave a 180 days period to ISGS to remedy the alleged Material Breach and referred the matter to Coordination Committee for resolution. The source said that it has been estimated that in case of non-implementation of the project by Pakistan, Tehran will move the Paris-based International Arbitration and it has been estimated that Pakistan will pay potential contractual liability of approximately $18 billion.