2. SEQUENCE
History
of Project
Solution of Energy Crisis.
Prospects and Constraints
Geo Politics of the Region and Pipeline
Background of Sanctions
Recent Progress
Recommendations
3. BRIEF HISTORY
Idea was first conceived by young
Pakistani Engineer Malik Aftab Khan in
1950 where he proposed the current route
and stationing of troops along the
proposed line and also termed it as peace
pipe line.
Idea was conceptualized in 1989 and
Iranian Government responded positively.
4. Project Profile
Length. Total length is 2775 Km. 1172 km of
length is in iran and known as Iran 7th Cross
Country gas pipeline and remaining length in
Pakistan.
Route.
Starts from Asalouyeh, Bandar Abbas,
khusdar, sui and Multan.
Diameter
56 in (1,422 mm)
5. TECHNICAL DETAILS
Capacity.
Initial capacity would be 8.7 billion
cubic meter which is expected to be raised
to 40 billion cubic meter
Cost.
Expected cost incurred on completion
would be around 8 billion US Dollor.
6. Timeline
Discussion started in 1994 and agreement
signed in 1995 and it was agreed to
construct pipeline from South Pars Gas field
in Iran to Karachi.
No progress till 2004 and project revived
after UNDP report peace and prosperity
Gas pipeline.
In February 2007, India and Pak agreed to
pay Iran US 4.93 Dollar per Million British
Thermal unit.
In April 2008, China shown interest in
project and in 2010 Bangladesh also join
the project
7. In
2009 India withdrew from project
over pricing and security issue after
signing nuclear deal with US.
On 30th January 2013, Pak approved deal
with Iran for laying Pakistani segment of
pipeline and on 11th March 2013 project
was inaugurated by President Asif Ali
Zardari
PM Nawaz Sharif Assured that Pak is
committed to Project.
8. Solution of Energy Crisis
Due
to energy crisis Annual Loss to industrial
Sector is more than 240 Billion
Supply and Demand gap is as under
8
9. Pakistan
will import 750 mcft of natural
gas daily for generation of approximately
4000 MW of electricity. Replacement of
imported furnace oil by Iranian gas in our
industries will result in estimated saving
of billions of rupees
9
13. Phases of IP Pipeline
IP
passed through three phases:
Phase One: Energy security & Pak Iran
differences.
Phase Two: Energy Security and Peace
dividend.
Phase
Three:
Strategic
returns/constraints and energy security.
13
14. IP: In the Strategic chess board
Both
regional players factor IP in their relations
with USA.
Iran promotes it to undermine US objective in
the region.
Pakistan finds in opportunity to underline its
significance in the region.
USA sees it detrimental to its policy objectives
in the region.
14
15. Viewed From Tehran
Triple
win economic, political, and strategic
Project
Energy is vital component of Iranian foreign
policy.
Iranian regime intends to make maximalist
gains.
Iranian East ward energy moves are largely
driven by difficulties in western market.
Europe is Iran’s preferred option: Turkey
Route.
15
19. The Grand Bargain
Iranian
Gas would be moving to Europe.
In short run Iranian gas export to Asia
would be not significant though in
medium term prospects are better..
IPI would loose its strategic salience
and would be dictated more by
market economics.
19
20. Scenario Two: Confrontation
Iran
pursues more aggressive Energy
diplomacy, better terms to Asia.
Asia cannot make much gains due to
Sanctions.
IPI would remain in limbo.
20
21. Scenario Three: The Stalemate
Energy
will be high on Iran foreign policy
agenda.
Asia will be offered carrot and stick
options.
IPI will be kept alive project but the
progress will be determined by foreign
policy matrix of all the three stake
holders.
21
22. CONTROVERSIES
United
States. Asked Pakistan to abandon the
project and in return US will fund
construction of liquefied natural gas terminal
and importing electricity from Tajikistan
through Afghanistan Wakhan Corridor.
29th January US Consulate General Michael
Dodman threatened with Economic Sanction
Saudi Arabia. Offering Alternative Package of
cash loan and oil facility
24. Iran Pre-1979
Ruled
by the Shah, Mohammad
Raza Pahlavi
Allies with U.S. during the Cold
War
Regime fell in the Iranian
revolution of 1979
Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html
25. Iranian Revolution
After
the overthrow of the Shah,
Aytollah Ruhollah Khomeini came
to power
◦ Known as the Supreme Leader of Iran
Established
Islamic Republic of Iran
Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html
26. Iran Hostage Crisis
U.S.
Embassy in Tehran seized
on 11/4/1979
63 American citizens taken
hostage
50 hostages held prisoner for
444 days
Supported by Khomeini under
the slogan “America can’t do a
damn thing”
Source: http://encarta.msn.com/encyclopedia_761567300/Iran.html
27. Overview of sanctions against Iran
Began
after 1979 Iran Hostage Crisis
◦ Iranian Transactions Regulations - 31 C.F.R. § 560
◦ Import embargo on Iranian-origin goods and services
No
direct trade with the U.S. since 1995, when the
U.S. government banned all commercial and financial
transactions between U.S. companies and Iranian
public and private entities
Iran-Libya Sanctions Act of 1996
Current Nuclear Standoff with Iran
◦ Could lead to additional sanctions by U.N.
Source: http://www.treas.gov/offices/enforcement/ofac/programs/iran/iran.pdf
28. How Much Energy Does Iran Have?
Possesses
world’s 2nd largest natural gas reserves
~10% of world’s known oil reserves (4th largest)
◦ 2nd largest oil producer in OPEC
Source: http://www.eia.doe.gov/emeu/cabs/Iran/Background.html
29. Iran-Libya Sanctions Act of 1996 (ILSA)
Allows
the President to impose sanctions if a
person has made an investment of more than
$20 million “that directly and significantly
contributes to the enhancement of Iran’s
ability to develop petroleum resources of
Iran.”
Controversial because it allows the President
to impose unilateral sanctions on foreign
companies or entities
Source: Iran-Libya Sanctions Act, 50 U.S.C. § 1701 note (1996)
30. ILSA Continued
“Investment"
defined as the entry into a contract
that includes responsibility for the development
of petroleum resources in Iran or Libya
Statute silent as to whether the construction of
energy transit routes from Iran might be
considered an investment
However, Clinton Administration position was
that, under certain conditions, the construction
of such routes could be a sanctionable investment
Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, update
Apr. 26, 2006.
31. ILSA’s First Test
The
French oil company,
Total
SA, struck a $2 billion deal with Iran in
September 1997, to develop natural gas
reserves in Iran’s South Pars field
This was the largest single foreign investment
in Iran since the U.S. Embassy in Tehran was
sacked in 1979
Clinton Adm. found that deal violated ILSA, but
ultimately decided to waive sanctions
Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, update
Apr. 26, 2006.
32. Would the Pipeline be an
“investment” under ILSA?
◦ The Iranian side of the project will be financed entirely by
Iran and a group of multi-national investors Iran will be
required to put together
◦ Pakistan's investment in the project will start only after the
pipeline reaches Pakistani territory
Applying
a plain-meaning interpretation of ILSA,
Pakistan’s involvement could be interpreted as one
that does not directly contribute “to the
enhancement of Iran’s ability to develop petroleum
resources of Iran.”
33. Comparing Total’s case with Pakistan’s
◦ $2 billion investment
◦ Direct development
of oil fields within Iran
$7-10 billion proposed project
Natural gas transit route
No direct development by
Pakistan
Pakistani ownership of the
pipeline would begin at its
border
However, deal would provide
incentive and funding for Iran to
develop its gas resources
34. Effects of Sanctions Continued
Since
the Total waiver, ~ $11.5b in foreign investments
in Iran’s energy sector have been agreed upon.
Iran’s
natural gas sector, non-existent prior to the late
1990’s, is becoming an increasingly important factor in
Iran’s energy future as a result of foreign investment.
E.U.
threatened formal counter-action over ILSA in the
WTO, and in April 1997, the U.S. and E.U. formally
agreed to try to avoid a trade confrontation.
Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for
Congress, updated Apr. 26, 2006.
35. Recent Progress
Pakistan
needs gas very badly," said Mr.
Sharif." We have to run our power
plants. We need gas for them. There is an
acute shortage of gas in Pakistan, so we
have to import gas from somewhere.“
He said that Pakistan would proceed
"unless you give us the gas, or the $3
million a day."
35
36. Recommendations
Pipeline
does not bring peace but peace
brings projects such as cross-border gas
pipelines. Pakistan needs to move ahead, play
its due role to complete the project.
constructive engagement and diplomatic
reconciliation
with US rather than
confrontation should be our focus. The
completion of IP Pipeline will be a test case
of our diplomatic and political triumph in
future.
36
37. This
IP pipeline presents Pakistan with an
opportunity to establish itself as a reliable
energy corridor or energy transit hub
thereby not only achieving energy
security for itself but also earn substantial
amount of foreign exchange in terms of
transit fees and royalties from pipeline by
luring India and China into the project.
it is imperative to address the Baluchistan
problem properly and justifiably as to
removing this major bottle neck hindering
this enormously vital project.
37
38. Keeping
in view the projected increase in
energy demand and expected short fall of
around 10 bcf by 2025 (2500 MMSCFD
by 2015), the above pipeline would be
vital to meet the shortfall and trigger
economic growth in Pakistan.
38
In 1963, The shah introduces his "White Revolution," a package of comprehensive social and economic reforms that aim to modernize the country. He also announces that he is extending the right to vote to women.
The clerical establishment was outspoken against the White Revolution, which led the shah to clamp down on its opponents. Ayatollah Ruhollah Khomeini, a leading cleric, was arrested and later exiled after he harshly criticized the shah. His arrest incited demonstrations, which were quelled by the shah's security forces. During this time, America provided the Shah with military and economic aid, while Iran provided the United States with a steady oil supply and valuable strategic presence in the Middle East, since Iran shared borders with both the Persian Gulf and the Soviet Union.
In 1978 and 79, there was an increasing amount of civil unrest in the country. As the unrest increased, the Shah and his family fled the country in January 1979. In February 1979, Ayotollah Khomeini returned to Iran from 15 years in exile. In April, he took power and proclaimed the Islamic Republic of Iran.
In October 1979, the Shah was admitted into the United States for medical treatment for lymphoma. There was an immediate outcry in Iran and on November 4, 1979, a group of students, all of whom were ardent followers of Khomeini, seized the United States embassy in Tehran, taking 63 American citizens as hostage.
As a result of Iran’s support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf, President
Reagan, issued an Executive Order imposing a new import embargo on Iranian-origin goods and services.
Under the radical leadership of President Mahmoud Ahmadi-Nejad, Iran directly threatens vital U.S. interests in multiple arenas and through a variety of instruments – its defiance of the international community in pursuit of a nuclear weapons capability; its efforts to sow chaos and instability throughout the region, particularly in the precarious democracies of Iraq and Lebanon; repressive treatment of its own citizenry; its support for international terrorism; and its long-standing and violent rejection of any Middle East peace.
as of January 1, 2006, Iran held 132.5 billion barrels of proven oil reserves.
As of the same date, Iran contained an estimated 970 trillion cubic feet (Tcf) in proven natural gas reserves, making it the world's second largest reserves and surpassed only by Russia.
Potential customers for Iranian energy exports include: Ukraine, Europe, India, Pakistan, Turkey, Armenia, Azerbaijan, Georgia, Taiwan, South Korea, and China.
A 2-3 % cut in world oil production can have significant impacts on gas prices and resulting negative repercussions on the U.S. economy. Energy prices tend to fluctuate wildly, and in the short term consumers can’t adjust their consumption patterns quickly enough to avoid the pinch.
The most relevant U.S. statute that would affect Pakistan’s interest in the pipeline deal is the Iran-Libya Sanctions Act of 1996 (ILSA). Section 5(a) of ILSA states that the President shall impose sanctions if the President determines a person has made an investment of more than $20 million “that directly and significantly contributed to the enhancement of Iran’s ability to develop petroleum resources of Iran.”
The Total deal and the IPI deal are both clearly investments of more than $20 million. However, The Iranian side of the project will be financed entirely by Iran and a group of multi-national investors Iran will be required to put together. Pakistan's investment into the project will start only after the pipeline reaches Pakistani territory. Pakistan’s involvement is thus independent of Iran’s ability to develop its petroleum resources.
The Total deal was the quintissential case for ILSA sanctions. It was an investment made by a foreign company that directly contributed to Iran’s ability to develop its petroleum resources. Pakistan’s case is much more unclear. The argument can be made that Pakistan is only transporting gas from resources that Iran developed itself. On the contrary, this deal provides Iran’s investors a reason to invest in the development of its gas fields.
Source: Kenneth Katzman, The Iran-Libya Sanctions Act (ILSA), Congressional Research Service Report for Congress, updated Apr. 26, 2006.
