Sanctions and gas pipeline

Published January 5, 2012

WHILE the government faces riots over short-term gas shortages, the long-term availability of gas from Iran remains a distant possibility.

Pakistan entered into an agreement with Iran to purchase gas on May 24, 2009. As per the deal, both sides agreed to lay pipelines up to their respective borders by 2014. In the event that one side was unable to do so, it would pay $2m per day to the other as penalty.

It is learned that Iran has nearly completed its pipeline and by December 2014 could make gas available at Pakistan's border. Pakistan, on the other hand, has not even started work on the approximately 700km-long pipeline that is required to be constructed up to the Iranian border.

On the request of the Pakistani leadership, Iran has reluctantly agreed to extend the deadline up to the first quarter of 2015. Even this is not enough, say experts, who believe that Pakistan faces the alarming prospect of paying $2m per day if it fails to lay the 700km pipeline through Balochistan up to the Iranian border.

Further, the UN Security Council imposed sanctions on Iran by passing Resolution 1929 on June 9, 2010. The said resolution — somewhat ambiguous — is being interpreted as prohibiting states from having any financial transactions with Iran that result in support to the Iranian nuclear programme.

It is pursuant to this resolution that Pakistan faces pressure, particularly from the US (which also has an Iran-specific law prohibiting commercial dealings), to give up the pipeline project. The sanctions approved under the UN resolution (passed under chapter VII of the UN Charter) are binding on Pakistan. Because of this UN resolution Pakistan faces a dilemma.

On one hand, the UN resolution is being interpreted as prohibiting Pakistan from having financial or commercial transactions, including the gas pipeline, with Iran. On the other, through a bilateral arrangement it has entered into a binding agreement with Iran for the purchase of gas, failing which it would have to pay a staggering amount in compensation.

It is also in the news that the Executive Committee of the National Economic Council has approved the issuance of sovereign guarantee for the project.

What should Pakistan do under these circumstances? Does Pakistan have the option to withdraw from the agreement? Apparently not, unless it pays Iran for the expenses of the pipeline that the Iranians have already laid down, along with a huge sum in damages.

In that case, Pakistan also faces the continued shortage of gas, especially in Punjab, as after the 18th Amendment and the reaffirmed implementation of Article 158 of the constitution, Punjab's right to receive gas remains subject to the fulfilment of the needs by provinces where the gas wellheads are located.

On the other hand, because of the UN resolution Pakistan faces an obligation under international law to suspend or freeze the Iran gas pipeline project.

In this regard, it is proposed that the Government of Pakistan should explore invoking Article 50 of the UN Charter which states that if any sanctions result in special economic problems to a member state it will have the right to consult the Security Council with regard to a solution.

Pakistan can approach and seek consultation with the UNSC given the current gas shortage in Pakistan which is resulting in riots, economic breakdown and a law and order situation.

Further, the Pakistani government can argue that the Iran gas pipeline agreement was executed before the passing of Resolution 1929 and therefore the resolution has the effect of expropriating a commercial interest/supply agreement created through a bilateral arrangement to rectify gas shortages in Pakistan.

It can also be argued that Pakistan can purchase gas against an undertaking from Iran that the said payment shall not be diverted to the build-up of the Iranian nuclear programme and that it can be diverted to any other social sector by the Iranian government under a possible verifiable framework.

Although the UNSC resolutions on Iran earlier established a committee, the mandate of the said committee is limited to implementation of the sanctions rather than examining the difficulties of third states on this count.

By invoking Article 50 of the UN Charter, the government can put across the above points. It can, for instance, argue that given the general language of Resolution 1929, it is not applicable to the Iran-Pakistan gas pipeline project.

Alternatively, Pakistan could agree to a mechanism that ensures that payment to Iran is not diverted to military/nuclear use. If the UNSC makes an exception for Iran's gas pipeline based on the interpretation of the resolution or under Article 50 then it is fine. However, if it declines to allow Pakistan to go ahead with the project then Pakistan is being effectively forced to rescind the pipeline agreement by the UN.

In that case, Pakistan should consider presenting a case for asking for compensation not only with regard to payment to Iran but also for arranging an urgent solution like LPG to rectify gas deficiencies, or any long-term alternative like a pipeline through Afghanistan. In that case, Pakistan also needs to obtain bilateral guarantees from Afghanistan for the safe passage of the pipeline.

Pakistan is facing an unusual situation. It faces two binding obligations, one under a bilateral agreement, the other under the UNSC resolution. Both apparently force Pakistan to act in opposite directions.

If Pakistan complies with the principles of the Iran gas pipeline agreement, it is viewed as disregarding and violating the UN resolution. If it adheres to the UNSC resolution it ends up violating the Iran gas pipeline agreement.

The violation of the UNSC resolution is a huge cost in financial terms for Pakistan whereas in the case of violation of the Iran gas agreement, Pakistan has not only to pay staggering costs to Iran but also bear the burden of providing alternative gas resources to its industrial and consumer sectors.

In the above circumstances, it would be appropriate for the government to look into this issue on an urgent basis and consider invoking Article 50 of the UN Charter and bring to the notice of the UNSC the peculiar circumstances and difficulties that it confronts.

The writer is an advocate of the Supreme Court of Pakistan and president of the Research Society of International Law.

ahmersoofi@hotmail.com

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