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The pipeline of peace

It is significant that the chief guest at this year’s Republic Day parade would be the President of Iran, Mohammed Khatami. Prior to th...

Written by R K Pachauri |
January 21, 2003

It is significant that the chief guest at this year’s Republic Day parade would be the President of Iran, Mohammed Khatami. Prior to the visit of the Iranian President, a team of officials from that country led by the Deputy Foreign Minister Dr Mohammad Hossein Adeli have done valuable preparatory work.

Indo-Iran relations have grown significantly across various sectors, but India’s greatest interest lies in secure and economically attractive import of hydrocarbons from Iran.

The current situation in Iraq and the implications this holds for the price and stability of supply of oil from West Asia only add greater relevance to cementing contractual and infrastructural arrangements for supply of natural gas from Iran to India.

It was in 1989 that Dr Ali Shams Ardekani, later Deputy Foreign Minister of Iran, and I jointly developed a proposal for import of natural gas from Iran to India through a pipeline stretching overland across Pakistan.

For Iran, which has huge reserves of natural gas in the southern part of that country, South Asia is clearly the most attractive market. For India, dependent as it is on an increasing volume of imports of oil, natural gas through a dedicated pipeline not only provides security of supply of a large quantity of clean fuel, but also addresses a strategic challenge which has several positive dimensions.

The initial reaction of Indian policy makers to whom this concept was first put forward in 1989-90, was generally sceptical. The question was asked: ‘‘How can we think of a supply arrangement where we would be at Pakistan’s mercy to give us uninterrupted transit?’’

This question has still not been answered, but sufficient progress has been made now to think of the pipeline option as a real possibility. What makes this arrangement even more attractive is the prospect of supply at a very reasonable price reported to have been discussed at $1.80 per million metric British thermal units (mmBtu) delivered to the Indian border.

This is almost half the price of imported liquefied natural gas, for which specific projects in India are currently in hand with some shaky prospects of successful completion.

The strategic importance of the Iran-India pipeline can also be seen in the context of recent reports that indicate Iran’s plans to open up the southwest Iranian port of Chahbahar with large discounts on various port charges.

A three-way arrangement between Afghanistan, Iran and India could open up the hydrocarbon reserves in Central Asia as well which would by-pass the Afghan-Pakistan route. The Iranian leadership is of course very conscious of Pakistan’s sensitivities on some of these issues, and it is for this reason that the Iranian President visited Pakistan a few weeks ago to balance his presence in India on Republic Day.

With membership of several Islamic forums, Iran and Pakistan have had a formal relationship for several years now, which however, has not been without tensions and with a history of largely sterile economic cooperation.

As a result, bilateral trade between the two neighbours is abysmally low, and people-to-people exchange hardly at a noticeable level. This contrasts with a record of increasing Indo-Iranian trade in recent years.

If the proposed pipeline were to become a reality, there would be strategic benefits for both India and Iran, but Pakistan would also benefit substantially in an economic sense. Firstly, Pakistan itself would have a growing demand for natural gas, and with the planned pipeline configuration, the offtake of gas from Pakistan would be 50-60% of the total quantity for India. Economies of scale with the larger India-oriented pipeline would benefit Pakistan also in terms of lower unit costs.

Additionally, the transit fee that India would pay for the piped gas passing through Pakistan would be somewhere of the order of $ 600 million annually.

Some in the Indian establishment recoil at the thought of providing Pakistan this large source of regular income, but Indian policy in this regard cannot rest on cutting your nose to spite your face. The economic benefits to India would be huge, and provided the contractual and infrastructural arrangements ensure secure supply, benefits from natural gas from Iran would far exceed the benefits that Pakistan may derive directly or indirectly.

India certainly has security concerns, and given the danger of terrorism in Pakistan, these cannot be laid to rest easily. But the manner in which discussions are evolving between Iran and India can lead to firm arrangements that would ensure uninterrupted supply of gas.

Firstly, an international consortium could finance and own the bulk of this pipeline, which would make them stakeholders in the project. Secondly, the contractual arrangements could carry heavy penalty terms that would compel Pakistan to ensure proper protection of the pipeline, particularly since it would be earning huge revenues.

There could also be other interlocking measures such as India receiving part of the gas, generating power from it and supplying it to Pakistan as part of a comprehensive contract. Much else can be done to make the cost of mischief in Pakistan prohibitively high. But to create a sense of reassurance, Pakistan needs to urgently change its rhetoric.

General Musharraf in a speech delivered on June 23, 2000 aired an inflated view of Pakistan’s strategic advantage due to its geographical position. He said, ‘‘Iran wants to send gas to India, it has to go through Pakistan… God has given us this strategic location, the importance of which is emerging fully now’’.

In the same speech, he referred to an earlier interview where he had stated: ‘‘We are a responsible country and when we reach an economic arrangement, we will abide by it’’.

In the same breath, when pressed on India’s fear that Pakistan would tamper with supply he said contemptuously … ‘‘Well, then you can ask Indians to take out the gas by air. That is the only way left’’.

Over two years ago, the Tata Energy Research Institute launched a joint project with a Pakistani institute for drawing up the contractual and financing arrangements for an overland pipeline, which would provide adequate security to India.

When I mentioned this fact to Gen Musharraf during his visit to India in September 2000, he said he supported such a study and the establishment of the Iran-Pakistan-India pipeline. However, none of his statements subsequently has deviated from the conceited view of his June 2000 speech quoted above.

If Pakistan is serious about the pipeline option and wants the economic benefits flowing from it, then the Pakistan leadership must signal a change in posture. Perhaps, Iran can influence such a change with a sense of urgency.

Iran, clearly, is the biggest stakeholder in this deal, not only because it would get substantial revenues from the sale of natural gas, but also because a large part of the investment to be made would lie on Iranian territory, extending over 1,000 kms as compared with 800 kms over Pakistan and perhaps 700 kms in India.

Republic Day 2003 would be a unique opportunity for the leadership of India and Iran to discuss threadbare the historic opportunity for a new era in this region through the gas pipeline from Iran to India.

The deep sea pipeline option bypassing Pakistan is favoured by Indian decision-makers for obvious reasons, but this would saddle us with a far more expensive solution, even though the security concerns of the overland route are more challenging and problematic.

But, it is through the genius of statesmanship that such challenges have been met throughout history, and perhaps Republic Day provides the leadership of India and Iran a unique moment to create a mutual structure of economic relations providing major benefits to both countries and to Pakistan. It could also usher in a new era in Indo-Pak relations.

The author is the Director General of TERI and Chairman of the Intergovernmental Panel on Climate Change

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