October 8, 2004
One OF the most significant outcomes of the New York meeting between President Pervez Musharraf and Prime Minister Manmohan Singh was their joint announcement on the Iran-India gas pipeline stretching overland across Pakistan. The statement highlighted the project because it ‘‘could contribute to the welfare and prosperity of the people of both countries and should be considered in the larger context of expanding trade and economic relations between India and Pakistan’’.
These words are as much a manifestation of the mutual desire of both leaders towards friendly Indo-Pakistani relations as they are of our Prime Minister’s concerns about the energy challenge facing India.
It was in 1989 that Ali Shams Ardekani, an economist who later became Deputy Foreign Minister of Iran, came to India. He and I jointly worked out the broad details of a natural gas pipeline from Iran to India through Pakistan, tapping the vast gas reserves in southern Iran to meet the expanding energy demands of India and Pakistan.
Ardekani presented a paper on this project at an international conference organised by TERI in New Delhi. An early convert was a senior official in the Ministry of Petroleum and Natural Gas. But when Ardekani and I met some politicians, even the more forward-looking ones labelled the project as ridiculous. ‘‘How can we mortgage our energy future to Pakistan?’’ they asked.
Even so, cautiously and gradually, interest developed. Successive governments in Iran also kept up the effort, understandable because Iran’s best market for its southern gas reserves is India. The geopolitical attraction of structuring a friendly relationship with Iran has helped the project remain alive within the Government of India.
But much time and effort has been wasted in assessing the feasibility of an undersea pipeline, skirting the territorial waters of Pakistan. Direct import of LNG is also an option, but the large quantity of gas that India should plan for its energy future is best transported by pipeline.
The pipeline option may also allow negotiated prices that could hold over a very long period, insulating the Indian economy from sudden oil price increases, stark evidence of which is available today as global oil prices hover around the $50 level.
In the larger context, this project can herald a new era of economic realism in the subcontinent. While official figures for Indo-Pakistani trade are abysmally low, the unofficial level routed through third countries is estimated at around $2.5 billion. Many Indian goods, ranging from cashewnuts to Benarasi silk, are seen even in a Pakistani hill resort like Murree, imported ostensibly through Dubai.
Indian decision-makers voice several valid concerns on the security and stability of the pipeline arrangement. But does India not have the upper hand in the Indus Waters Treaty, allowing us some leeway to respond effectively should Pakistan curtail gas supply through the pipeline?
Besides, if the project is to be financed by international institutions, can Pakistan go against the interests of powerful western stakeholders? India can ensure contractual terms that would impose very heavy penalties on Pakistan in the event of any disruption in supply.
Part of the gas flowing to India could generate power, which Pakistan may be contracted to buy. Disrupting supply of gas to India would then translate into disruption of supply of power to Pakistan.
We also need to remember that the gas pipeline from the former Soviet Union to west Europe was negotiated at the peak of the Cold War.
Large-scale import of gas is a necessary, though by no means sufficient, condition for India’s energy security. India is expected to consume 5.6 million barrels per day (mbd) of oil in 2030, up from about 2.1 mbd in 2000.
Most of this increase would come from OPEC nations in the Middle East. This poses not so much a risk of a physical disruption in supply—which can be countered, at a cost, by India holding large enough strategic petroleum reserves. But what can cripple the Indian economy at such high levels of oil consumption is the economic impact of sudden price increases.
Hence, while we seriously pursue efforts to develop sustainable energy options, natural gas imports over the coming decades would be crucial. Diversifying energy supply should be only part of our strategy. A more important change would lie in restructuring the Indian economy for a path of lower oil intensity.
The transport sector, which consumes an increasing quantity of oil with an alarming rise in the share of road versus rail transport, requires major interventions. These must start with restructuring the Indian Railways, once one of the best in the world but now a pawn in the game of politics. Of course, much else is needed, which hopefully would be articulated by the new committee set up by the Government to draft an energy policy within six months.
Right from the early 1960s, we have had one committee after the other recommending changes in energy policy. But the necessary integration of policy across the silos of the Ministries of Power, Petroleum, Coal, Transport, Railways has never been attempted seriously.
Committees may serve a one-time purpose, but energy developments require continuous analysis and innovation, which can best be articulated perhaps by think-tanks providing a constant flow of inputs for use by the Government.
In this spirit, if we have to provide substance to the joint statement from New York, then our Prime Minister should set up a task force consisting government officials, leaders of business and financial institutions as well as experts to come up with a road map for implementing the Iran-Pakistan-India pipeline project. If we want a secure energy future for India, we need to think and act out of the box.
The writer is Director-General, TERI, and President, Asian Energy Institute
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