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The News

Published Date: Oct 28, 2013

SDPI wants renegotiation of Pak-Iran gas deal

The pricing
formula for the Iran-Pakistan Gas Pipeline agreed upon in 2009 will be
an economic death sentence for Pakistan, says the Sustainable
Development Policy Institute (SDPI) report.

It is not
too late to renegotiate the price however, as the report recommends to
the Government of Pakistan to re-negotiate gas pricing with Iran.In
2007, Pakistan agreed on an average crude oil parity of 45 percent of
crude oil parity but this saw a dramatic increase to an 85 percent crude
oil parity under the 2009 Gas Sale Purchase Agreement (GSPA) with Iran,
according to the report. Pakistan’s Economic Coordination Committee
(ECC) on 10th April 2007, approved gas purchase formula, indexed with
Japan Customs Cleared Crude (JCC), a crude oil price index. In year 2007, the average gas production price in Pakistan was $2.6 MMBTU.

"According
to the agreed formula, the gas rate at the Pakistan border was to be
$6.56. $7.06, $7.87 $8.6 per MMBTU and $9.3 in case oil prices increase
to $80, $90, $110 and $1200 per barrel, respectively," says Arshad H.
Abbasi, lead author of the report.

"The then Petroleum
Secretary Finance Mr. Ahmad Waqar had briefed the media about the gas
purchase formula."The Inter State Gas Systems (ISGS), representing
Pakistan as buyer in this agreement, a company mandated by the
Government of Pakistan to develop natural gas import projects and to
serve as an interface between the GOP and other national and international agencies
for the import and storage of natural gas in Pakistan, agreed to
purchase natural gas from Iran at an average crude oil parity of 85 per
cent.

"This means the Iranian gas at the Pakistan border
would be US$15.38 per MMBTU, US$16.60 with correspondence USD 110 , $120
per barrel, respectively," according to the report.

This is contradictory to international gas pricing trends. The report looked at the Gas Sale Purchase Agreements
between Spain and Algeria, United Kingdom and Norway, Spain with Norway
and discussed the impact of oil crisis of 2008 on price of natural gas.

In
June and July 2008, the crude oil price at Europe Brent Spot touched
the figure of USD 132.32 per barrel, the correspondences; pipeline gas
price was USD 9.55/MMbtu between Spain and Norway, USD 11.24/MMbtu
between UK from Norway and USD 12.07/MMbtu respectively. This
established that the then secretary petroleum and his brigade signed the
highest percent of crude oil parity.

Pakistan’s team which negotiated the Pakistan-Iran Gas Pipeline Agreement failed to protect the country’s national interests, it seems when looking at this pricing formula.

Historically,
Iran and Pakistan share centuries of history and have strong religious
and cultural ties. Even Pakistan’s national anthem borrows its poetic
vocabulary from Persian that percolates through Urdu. Pakistan is
heavily influenced by the rich culture and language of Iran, and the two
countries are not only neighbors, but also share brotherly ties. In
this regard, it is incumbent upon the Government of Pakistan to
renegotiate the price with this fraternal country and safeguard
Pakistan’s national interests.

Looking at the report, it
seems there needs to be the accountability of those responsible for this
pricing agreement that could prove an economic death sentence
for Pakistan.If the newly elected NAB chief wants to reinstate the
image of the bureau as an effective body, it should rise to the
occasion.