ISLAMABAD: Pakistan has shared with Iran amendments to gas sale and purchase agreement (GSPA) to extend implementation schedule and revise pricing under the $1.35-billion gas pipeline project.
A senior government official on Thursday told Dawn that the Economic Coordination Committee (ECC) of the Cabinet hasn’t yet allowed the Ministry of Petroleum and Natural Resources to start formal negotiations with Iran over fresh pricing.
He said the ministry requested the ECC in July this year to revive a committee to start formal talks and “we are still waiting for the approval”.
The petroleum ministry told parliament a few days ago that for the Iran-Pakistan (IP) project to be implemented in the extended period, “amendment to the GSPA was required”. It said a draft amendment had been shared with Tehran that agreed to negotiate it along with some other changes.
The official explained that the two key amendments were required to be made in the GSPA that had been “under suspension” for a few years. These proposed changes related to extension in timelines under the original agreement Pakistan should have completed the pipeline on its side by Dec 31, 2014 and gas flows should have started with effect from Jan 1, 2015.
Secondly, the pricing formula has to be revised based on latest market situation, prevailing prices from competitive sources and international best practices. Both Tehran and Islamabad wanted extension in dates and prices that would trigger a series of actions in line with best international practices.
The talks on the project were revived after a few years of suspension in March this year during the Iranian president visit to Pakistan. The two sides agreed to GSPA amendment for extension of time to finalise workable implementation schedule, price negotiation as per review clause in GSPA and Iranian proposal regarding amendments to the GSPA.
Since the project could not be completed due to unilateral withdrawal from government-to-government cooperation agreement by Iran, the Pakistani side proposed to extend the time for completion of the project for which proposed amendments to the GSPA were shared with Iran. The Iranian side also verbally suggested making some amendments to the GSPA. It, however, did not share any draft despite repeated requests.
The federal cabinet approved signing of the Iran-Pakistan GSPA on June 3, 2009. The petroleum ministry also sought permission to constitute a price negotiation committee led by the secretary petroleum and comprising secretaries or their nominees of the ministries of finance, law, foreign affairs and managing directors of the Sui Southern Gas Company, Sui Northern Gas Pipelines Ltd and Interstate Gas Company.
The sources said Pakistan discussed the issue of “snap back” of sanctions besides setting realistic time frame for achieving financial closure and construction timelines. Iran assured alternative preparations to the sanctions issue through contractual frameworks.
Iran has told Pakistan that the pipeline segment on the Iranian side will take about one-and-a-half years to complete. Pakistan has stressed the need for setting the right timelines targeting early completion yet adequate provisions and flexibility for long-term measures and all eventualities towards achieving an amiable financial closure and construction.
On the matter of price review, Pakistan has referred to new and transformed gas market dynamics, including the availability of liquefied natural gas as a cheaper alternative fuel to the Iranian gas. Iran has officially conveyed that there was no difficulty in reviewing the price mechanism under the price review trigger.
To satisfy Iran over payments and banking arrangements, Pakistan has already taken a few steps in lifting restrictions on banking transactions with Iran, including a notification by the State Bank of Pakistan a few months ago. Iran has already indicated revisiting the price formula indexation from Japan Crude Cocktail to Brent and a discount for peak off-takes in summer.
Pakistan is currently building the 700-kilometre Gwadar-Nawabshah gas pipeline through Chinese assistance.
Published in Dawn, December 9th, 2016