Pipeline prospects

CENTRAL ASIA - CAUCASUS ANALYST November 16, 2005

DOES THE IRAN-PAKISTAN-INDIA PIPELINE HAVE A FUTURE?
Rizwan Zeb

The Iran-Pakistan-India (IPI) pipeline has been called the ‘peace pipeline’ and ‘mother of all confidence-building Measures’ between India and Pakistan. All three countries stand to benefit from this pipeline. Iran would be able to sell its gas, Pakistan, apart for getting energy supply for its domestic consumption, could also project itself at the cross-roads of trade between Central and South Asia, and India would get much-needed energy to achieve its desired growth rate. However, recent developments in the region, the nuclear cooperation deal between India and the U.S., and the Washington’s strong opposition to the pipeline indicate the project may have a gloomy future.
BACKGROUND: The IPI pipeline would run about 1,115 km (690 miles) in Iran, 705 km (440 miles) in Pakistan and 850 km (530 miles) in India, and total investment is estimated at $4 billion and may take 4 to 5 years to complete. Australia’s BHP, the National Iranian Gas Company, Petronas and Total have expressed interest in building the pipeline. The Indian government recently decided it would seek cabinet approval for joining the project once the three countries decide on the project framework by late 2005. However, much needs to be done and decided. The three countries have yet to decide whether to firm up separate consortiums for the 2,670-km (1660 miles) pipeline in their respective territories or a joint consortium. A number of sources have pointed out that New Delhi’s may prefer to be a gas buyer without sharing any responsibility of the project execution. Islamabad has agreed to allow Tehran to keep the proprietorship of the project excluding the terra firma in Pakistani territory.
Addressing a press conference after the recently held meeting of the Joint Working Group (JWG) in Islamabad, Indian petroleum secretary Sushil C. Tripathy said the Tripartite Framework Agreement would be finalized by December. The pre-feasibility study of the project will also be completed by December. Both sides also decided to seek third party certification of Iran's gas reserves before moving ahead on the IPI pipeline.
However, the project is facing strong American opposition. U.S. Secretary of State Condoleezza Rice told Indian NDTV: "Our views concerning Iran are very well known by this time, and we have communicated to the Indian government our concerns about gas pipeline cooperation between Iran and India." The U.S. has also made it clear to the leadership of India and Pakistan that the proposed project will result in U.S. sanctions under the Iran-Libya Sanctions Act (ILSA). In the beginning, both countries declared their resolve to go ahead with the project. “This is between us, India is not a client state”, remarked the Indian premier.
New Delhi of late seems to have accommodated American pressures. A change in the Indian stance regarding the IPI pipeline has been visible lately. During his visit to United States, Manmohan Singh made several statements to illustrate this fact. "Only preliminary discussions have taken place (on the pipeline). We are terribly short of energy supply and we desperately need new sources of energy. That’s why we have agreed to explore the possibility of the pipeline with Pakistan," he told The Washington Post, adding “I am realistic enough to realize that there are many risks considering all the uncertainties of the situation in Iran. I don't know if any international consortium of bankers would underwrite this. But we are in a spate of preliminary negotiations." Indian Petroleum Minister Mani Shankar Aiyar said the project was "fraught with terrible risks" and that financing would be extremely difficult.
This is not surprising. For the first time in its history, India has become a strategic partner with the U.S., something clearly indicated by the nuclear deal between the two countries, which trashes existing nuclear non-proliferation laws. According to news reports, U.S. State Department officials said that U.S. nuclear cooperation with India was part of its efforts to stop the construction of the proposed pipeline. During his trip to Islamabad, World Bank Head Paul Wolfowitz told the Pakistani leadership that the bank would not allow any international financial institution to finance the project. According to a news report, the U.S. is considering a proposal to help Pakistan meet its energy needs as part of its efforts to wean India and Pakistan away from building a pipeline for bringing gas from Iran. Indian journalists have pointed out that Manmohan Singh is incorrect when saying that only preliminary talks have taken place. As Indian reports point out, remarkable progress has been made in the last six months. Seven meetings between India and Pakistan and India and Iran have taken place on the pipeline. These exchanges have generated a lot of clarity and optimism on the project.
IMPLICATIONS: Manmohan Singh’s recent trip to the United States and India’s emerging grand vision spells a number of implications not only for the IPI pipeline but also for the region, the peace process and India. India will find it very intricate to choose a path between following the United States or joining the IPI gas pipeline project to meet its growing energy needs. Moreover, Indian hard talk on the pipeline could be aimed at drawing more benefits out of the deal from the other pipeline partners. New Delhi has already asked Tehran to sell its gas at the domestic rate, something Tehran is unlikely to accept. During the recently held Indo-Iranian Special Joint Working Group meeting in Delhi, Iranian officials suspected that New Delhi is yielding to US pressure. New Delhi also declined an Iranian proposal for signing an MoU setting out a timeframe for implementation saying that Indian security concerns have to be met first.
Apart from the fact that the IPI pipeline makes greater economic sense with the attendant political and security significance, it is immensely significant for the on-going peace process between India and Pakistan. A number of observers of India-Pakistan conflict have termed this project as the mother of all confidence building measures between India and Pakistan and named it the peace pipeline. This pipeline will tie both countries to a common cause. When operational, both sides would have a stake in the stability, peace and security of the other country. U.S. interests regionally as well as globally dictate that there should be peace in this region, therefore its opposition to the project is unwise in terms of its interests in South Asia, given the pipeline's potential dividends for promoting regional peace, security and economic development. If New Delhi withdraws, the cost of gas to Islamabad might be uneconomical as it will lose $600 million annually in transit fees from India alone. American strategic thinkers view India as an ally in its attempts to counter China as well as Iran, and thereby ensuring its global energy supremacy – and an India-Iran deal would run counter to this broader logic. By signing a civilian nuclear pact with India that gives it access to more advanced nuclear fuels, the U.S. seems to have achieved this objective – at least on this theatre.

CONCLUSIONS: The prospects for the IP pipeline are complex and unpredictable. India needs news sources of energy to achieve significant growth rates. Pakistan wants to project itself as a crossroads for trade between Central Asia and the Subcontinent, apart from getting gas for its domestic use. Iran needs to sell gas. But the ground realities are not favorable or supportive. American pressure on India and Pakistan has the potential to derail the pipeline peace process between the two or at least result in a stalemate. Pakistan, being a recipient of large sums of U.S. aid, could also be susceptible to consider the risks involved in pursuing a pipeline project against Washington’s wishes. Therefore instead of pressing the issue, Pakistan needs to look for other options as well. What is the future of the IPI pipeline then? Perhaps the most likely outcome is that all sides will keep talking without doing anything on the ground.

AUTHOR’S BIO: Rizwan Zeb is Senior Analyst at the Institute of Regional Studies, Islamabad.