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The News

Published Date: Oct 23, 2013

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.