Pakistan and Iran reach agreement on unmet gas deal

FT.com

Energy-starved Pakistan has convinced Iran to step back from demanding $200m a month from January 1 to compensate for Islamabad’s failure to begin receiving gas from Iran’s South Pars gasfield, according to the country’s minister for petroleum.

Pakistan has in the past said the Iranian gas is the cheapest option available as its own reserves in the country’s south and southwest dry up. However, officials have complained of continuing US pressure on Islamabad to keep the arrangement with Iran on hold until US-led international sanctions on Tehran are lifted.

The “new understanding” between the countries revealed by Shahid Khaqan Abbassi removes for now a “take or pay” obligation on Pakistan to compensate Iran whether or not it receives anything under a contract linked to the pipeline.

“We have a new understanding with Iran,” Mr Abbassi told the Financial Times. “There will be no penalty applicable from January 1.”

Pakistan produces about 4bn cubic feet of gas per day but officials say the country needs at least 8bn cu ft. The country’s worsening energy supply shortfall has been highlighted in recent days with anxious consumers complaining of gas shortages while the winter chill sets in. The problem has forced Pakistan to halt the sale of compressed natural gas at petrol stations so the gas can instead be diverted for household use.

A Pakistan foreign ministry official speaking on condition of anonymity said the agreement revealed by Mr Abbassi was important to keep relations intact between Islamabad and Tehran because the neighbours needed to co-operate in fighting Sunni Muslim militants who have sought to launch operations against predominantly Shia Iran from Pakistan’s southwestern Baluchistan province.

Since last week’s Taliban attack on a school in the northern city of Peshawar, officials have spoken of renewed efforts to improve security ties with Iran.

Energy experts said gas from Iran would form a substantial part Pakistan’s energy mix.

Sakib Sherani, a former adviser to the finance ministry in Islamabad, said gas from Iran was “a very significant source of future gas supplies to Pakistan. We can’t give up this project.”

Mr Abbassi said a planned terminal for converting imported liquefied natural gas to gas near the southern port city of Karachi would be “up and running” by March 2015.