Future of the Iran pipeline
By Najmuddin A. Shaikh
IN the last few days much has been written about the pipeline and the impact that Prime Minister Manmohan Singh’s remarks on the fundability of the project has had on the ongoing talks between India and Pakistan. Some have found it reassuring that immediately after the Indian prime minister’s remarks the Indian petroleum minister maintained that the talks were continuing and that the project remained on course.
There is, of course, no doubt that the Americans will bring pressure to bear to prevent Iran from securing additional revenues through the sale of energy to South Asia. There is also no doubt that legal restrictions contained in American Law — the Iran-Libya Sanctions Act (ILSA) of 1996 (renewed for five more years in July 2001) which imposed sanctions on all non-US companies investing more than $20 million in Iran’s energy sector and the 1995 executive orders prohibiting US companies and their foreign subsidiaries from conducting business with Iran, while banning any “contract for the financing of the development of petroleum resources located in Iran,”(renewed every year in March for a period of one year) — will not apply to the Iran-Pakistan-India (IPI) pipeline if the portion of the pipeline running in Iran is built by the Iranians themselves.
Even if it did apply, the Americans would look somewhat foolish in invoking it, when a whole host of European, Far Eastern and other companies have made substantial investments in the Iranian energy sector without having suffered any setback in their American operations. Malaysia’s Petronas have made substantial investments in the off-shore Sirri oilfield since 1998 and in 1999, France’s Elf Aquitaine, Italy’s Eni/Agip and Canada’s Bow Valley Energy received a buyback contract to develop the offshore Balal field.
The most striking example perhaps is of a foreign subsidiary (Cayman Islands) of the famous Halliburton Co, whose connections with Vice-President Cheney and other Bush administration officials are well known. This company reached an agreement along with a local Iranian partner to help develop phases 9 and 10 of the South Pars Gas field. The agreement was much publicized in the US and Halliburton then announced that it would seek no further contracts in Iran but undertook to honour existing contracts. So far there are no reports that Halliburton is being prosecuted for this violation of the presidential order.
There are numerous other examples and as one studies the pattern of foreign investment in the Iranian energy sector the picture that emerges is one of difficulties created by negotiations rather than by American sanctions and more importantly by the Iranian constitution’s specific prohibition on allowing any foreign entity to own any assets in the Iranian energy sector.
Professionals in the Iranian energy sector may seek to persuade their political masters that pipelines should be regarded differently from oil fields etc and that as in the power-generating sector a BOOT or BOT contract may be allowed to an international consortium for the IPI pipeline. The chances are, however, limited given the change towards greater conservatism in the composition of the Iranian majlis and the election of a new conservative President.
In my view, therefore, the pipeline will have to be entirely Iranian owned while it passes through Iranian territory not because of American sanctions but because of the provisions of the Iranian constitution. The question of financing may arise and the Iranians may have difficulty raising funds but there will be supplier’s credits and other ways in which Iran can meet the expense. Iran, of course, is also flush with foreign exchange given the recent rise in oil prices.
Various figures in the press suggest that depending on the route, the pipeline may be 2,700 kms or 2,100 kms in length. What should be certain, however, is that if the source of the gas is the Iranian South Pars field (energy magazines report that Phases 17 and 18 of the development of this field have been earmarked for producing gas for export to South Asia. Clarification is needed on whether the development is for the proposed pipeline or for the LNG that Iran has contracted to sell to India) the pipeline in Iran will run about 1,100 kms and that in Pakistan the length should not exceed 700 kms through largely flatland.
Just as the pipeline in Iranian territory will likely be owned by Iran, it would also seem logical that the 600-odd kilometre stretch of the pipeline that would need to be built from the Indo-Pakistan border to Indian consumption centres should be entirely Indian owned. The question will then be of the pipeline in Pakistani territory where it is probable that there will also have to be provision for storage sites to cope with any disruption in supply that may occur (a study of the literature on the subject suggests that such storage sites are an increasingly common feature in pipeline construction — Turkey for instance has three such storage sites — and the demand for such sites in Pakistan is not prompted by the uncertain security situation in Pakistani Balochistan or to a lesser extent in Iranian Balochistan).
What should be the cost of this pipeline? No figures have been officially released but it seems that the pipeline will be either 48” or 56” with compressor stations along the way to allow for a flow of up to 3.2 billion cubic feet of gas a day.
A handy guide for determining the cost is provided by pipelines built in our neighbourhood. Iran is building the 56” IGAT 3 pipeline from South Pars northwards. This 500 km pipeline is slated to cost $500 million or $1 million per km and will have some difficult terrain to traverse. For the Dolphin project which is to provide gas from Qatar’s vast gas field at Pars to the UAE and Oman, a 48” pipeline laid undersea for the most part at a depth of 50 metres will cost for the 370 km length, a total of $350million or less than $1 million per km.
It should be noted that the undersea pipeline even at a comparatively shallow depth is far more expensive than overland pipe-laying. The most expensive gas pipeline in our neighbourhood is the South Caucasus pipeline. This 42” pipeline will run parallel to the Baku-Tblisi-Ceyhan oil pipeline for a length of 621 kms from Azerbaijan to the Georgia-Turkey border and will cost $1 billion or approximately $1.66 per km.
This pipeline will, however, be running through some of the most difficult terrain in the world reaching heights of 9,300 feet or more, in sub-zero winter temperatures, which will need special arrangements to permit the gas to flow freely. It has been estimated that at least 50 per cent of the cost of constructing this pipeline is a consequence of the difficult weather, terrain conditions and special technical provisions to protect against earthquakes in an area that is prone to seismic upheavals, and therefore that the pipeline would otherwise have cost less than $1 million a km to construct.
In the light of these figures it is difficult to give credence to reports in the Indian press that appeared after the last round of Indo-Pakistan secretary-level talks that officials were now estimating the cost of the pipeline at $7 billion which could rise to $8 billion before the construction was completed in 2010. What I have found surprising is that none of our own experts have offered any comment on these outlandish figures or for that matter even on the original figure of $ 4.7 billion for a 2,100 km pipeline that was first being talked about at a time when anyone with access to technical journals knew that the cost of constructing a 48” pipeline in the US was $1 million per mile or less than $ 700,000 per km.
Of course the price of steel has gone up but the pipes are only part of the cost. To illustrate, the Baku Tblisi Ceyhan oil pipeline with its 48” diameter requires 655,000 tons of pipe for the 1770 kms length of the pipeline or 350 tons per km. These pipes are heavier because they had to be coated on the interior also but even assuming this to be the weight required and assuming the price of steel is $1000 per ton the pipe cost comes to $350,000 per km. Labour costs in Pakistan and India with the comparatively high productivity our welding experience over many years of pipeline construction has given us are about 1/5th the cost of labour employed in the United States or elsewhere in the western world. Certainly, the cost should not exceed in today’s market the prices paid for the Dolphin pipeline in the UAE or the IGAT pipeline in Iran.
Pakistan and India’s experience with private investment in the energy sector has been unfortunate. In India, the Enron supplied plant at Dhabol was supplied at scandalously high prices and therefore generated a demand for exorbitant prices for the electricity generated. It is only recently that an out of court settlement has been reached and the operation of the plant has recommenced. It did a great deal of damage to India’s reputation as a safe and sound destination for foreign investment.
In our own case Hubco and Liberty both cost more than $1 million per MW of installed capacity of thermal turbines at a time when hydel turbines — traditionally recognized as 30 per cent more expensive than thermal turbines — were being installed in our most sanctioned neighbour, Iran, at a cost of $ 650 thousand per MW. As was to be expected, we had a major scandal on our hands and even today Wapda limps along burdened with paying the high cost of electricity determined largely by these capital costs.
My interest in the energy sector dates back to the time I spent in Iran (two assignments totalling four years) and Iraq (one assignment of three and a half years) and I did some more intense reading on the subject when the Qatar-Pakistan pipeline was under consideration in the early nineties.
I have spent the last few weeks researching the subject further and in my next article I will try and share what I have learnt with regard to such other related subjects as the demand in Pakistan for imported gas, the criteria to determine the price that would be economical for Pakistan and the price that would be economical for India and the criteria for determining the royalty Pakistan should demand for the gas that passes through its territory for delivery to India. That too will be based on careful research but in the end it will be a non-technical study in which there may be fundamental errors
What is needed and what should be forthcoming as a public duty are technical comments from many veterans of the Pakistan gas industry. Some are now engaged in pipeline construction in Africa and elsewhere and there are many more that are in Pakistan doing consultancy work. They can, I hope, be persuaded to comment on the issue. Perhaps even more important would be the publication of a fact sheet by the ministry of petroleum covering the same ground.
I hope Indian and Iranian experts will make similar contributions. The Iran-Pakistan-India pipeline is of seminal importance not only for the role it will play in meeting South Asia’s energy needs and the precedent it will set for other such projects but because of the impact it will have on Indo-Pakistan ties. The slightest whiff of scandal — and there will be more than a whiff if such outlandish construction costs become the basis for planning — will see Indo-Pakistan relations plummeting. The distrust that already exists will be further reinforced. We could ill afford the scandal in the power generation sector but the price one paid for those mistakes will be dwarfed by the consequences of mistakes over the pipeline.


Unlearnt lesson of Hiroshima
By Zubeida Mustafa
SIXTY years ago on August 6, 1945, President Harry Truman issued a statement in Washington saying, “Sixteen hours ago an American airplane dropped one bomb on Hiroshima, Japan and destroyed its usefulness to the enemy. That bomb had more power than 20,000 tons of TNT. It had more than two thousand times the blast power of the British “Grand Slam”, which is the largest bomb ever yet used in the history of warfare.”
This event, which was underplayed at the time in terms of the human devastation it caused, changed the world for ever. This is what the crew of Enola Gay, the plane which dropped the atomic bomb nicknamed Little Boy, had been given to understand.
The world did change but in a terrifying way. Hiroshima marked the ushering in of the atomic age. Historians dispute the American contention that the use of the atom bomb, that killed 150,000 instantly or within a few days, led to the quick Japanese surrender and saved thousands of American lives. The Japanese emperor was preparing to end the war even without the use of the atom bomb. Be that as it may, this is not disputed that the use of nuclear weapons for the first time transformed radically the pattern of war and international relations.
The awareness of the potentially horrendous effects of nuclear power when it is used in war produced two results. First, the government which possessed it wanted to be the only one to possess it to gain an advantage over its rivals. Secondly, when an adversary managed to acquire the nuclear weapon, an arms race was the inevitable result. What we see today, 60 years after Hiroshima, is an offshoot of these phenomena.
When the United States lost its monopoly over “the bomb” after the then USSR had produced one too, the race began and more powerful and sophisticated weapons came to be stocked in the arsenals of the big powers. Today, it is estimated that 20,000 nuclear warheads are strategically deployed by the five recognized nuclear powers (the US, Russia, the former USSR, Britain, France and later China).
Thus in the cold war period, if there was a single factor, which determined the course of international relations, it was the fear of the nuclear bomb. This fear continues to exist even though the USSR disintegrated in 1991 and the cold war ended with the fall of the Berlin Wall. Ironically the Soviet Union became the victim of the economic consequences of the nuclear arms race.
The five nuclear powers created their exclusive club under the Nuclear Non-Proliferation Treaty which came into force in 1970. Although the treaty banned the spread of nuclear technology for military purposes to the non-nuclear states, it allowed them the “inalienable right” to develop, research, produce and use nuclear energy for peaceful purposes. Procedures were set out by which the International Atomic Energy Agency would verify and monitor the nuclear programmes of the non-nuclear states.
The NPT was designed to pre-empt the proliferation of nuclear weapons. The treaty has failed to do so. In the last decade alone three nuclear weapon states — India, Pakistan and North Korea — have emerged and one more, namely Iran, has become the centre of controversy. By the Six-Day war in 1967 Israel was also known to have manufactured nuclear arms without this being officially announced under its policy of strategic ambiguity. Hence it was not officially taken note of by the Big Nuclear-5. Neither has the NPT succeeded in getting the nuclear powers to dismantle their nuclear weapons gradually as they were required to do under the treaty.
This approach of the policy-makers is intriguing, especially when the story of Hiroshima is so well known. Numerous hibakushas (survivors of the atomic attack in August 1945) who became peace activists have taken upon themselves the mission of visiting various countries to create awareness about the horrors of the nuclear bomb. Earlier this year, one such delegation visited Pakistan to mark the 60th anniversary of the nuclear bombing of Hiroshima.
It is strange that the hibakushas’ message of shunning nuclear weapons has reached the common man but not the policy makers.
The nuclearization of South Asia is the most momentous development to have occurred in the nineties. As a commentator observed in the issue of Time magazine remembering Hiroshima, “The weapons that incinerated those two unfortunate cities represented a technological innovation with fearsome consequences for the future of humanity.
“But the US had already crossed a terrifying moral threshold when it accepted the targeting of civilians as a legitimate instrument of warfare.”
The problem is that now there are others crossing the moral threshold. In the case of Pakistan and India it is a double crossing. Are countries, which have a third of their population living below the poverty line, morally justified in spending their scarce resources on nuclear arms? The argument advanced by Islamabad that if it had not developed nuclear weapons it would have been subdued by a nuclear India does not hold true.
Neither has the mutually assured destruction (MAD) doctrine which is claimed to have prevented a war between the two South Asian neighbours any validity. In spite of their nuclear weapons, the two countries nearly came to blows in Kargil in 1999 and their forces confronted each other in eyeball-to-eyeball positions in 2002-03. It was not the awareness of the lethality of their weapons of mass destruction that stopped India and Pakistan from launching a fullfledged war. Pakistan even said that if need be, it would not hesitate to use its nuclear arms. Other international actors were at work which kept the peace in South Asia.
Conversely, Pakistan’s nuclear weapons will militate against its strategic interests in the present circumstances. In the war on terror that the United States is waging and in which Pakistan is its ‘useful’ ally, the issue of Islamabad’s nuclear weapons has been soft-pedalled. But the apprehension has been frequently voiced that the country’s nuclear arms could fall into the hands of the terrorists — either by a well-planned attack or after a government take-over by radicals.
The expression of such fears only compounds Pakistan’s dilemma. We do not know how the Bush administration views Pakistan’s nuclear programme today. There are reports (not officially confirmed) of Pakistan’s nuclear facilities being coded by the Americans to prevent their unauthorized use. There are also reports of the United States using Israel to strike Pakistan’s nuclear plants to disable them.
Writing in the Washington Post of May 15, 2005, William Arkin, a former army intelligence analyst with close contacts within the military, wrote about a top secret “Interim Global Strike Alert Order” approved by US Defence Secretary Donald Rumsfeld in 2004. It directed the armed forces to be ready to attack countries in different parts of the world, specifically naming North Korea and Iran.
Arkin added, “In the secret world of military planning, global strike has become the term of art to describe a specific pre-emptive attack. When military officials refer to global strike, they stress its conventional elements. Surprisingly, however, global strike also includes a nuclear option.”
In addition there is the additional factor of the US having promised nuclear aid to India in its July agreement with Prime Minister Manmohan Singh. It appears that Pakistan’s nuclear programme is suspect in Washington’s eyes and Washington has been throwing broad hints about its concern. Does that leave us safe?

