Will the pipe dreams be converted into reality?

Kandula Subramaniam

With the Agra summit between Pakistan’s President General Pervez Musharraf and the Indian Prime Minister Atal Bihari Vajpayee making some headway, there is every chance that the Indo-Iran gas pipeline may get a fresh lease of life. Even though the gas pipeline has not been discussed in specific, if trade is seen as an important element in furthering Indo-Pakistan relationship, it will play a very important role.

At this stage, it may be recalled that it was General Musharraf who, in one of the first interviews after assuming power in Pakistan, had stressed the importance of the gas pipeline. He had mentioned that Pakistan would be willing to enter into any arrangement for the security of the pipeline to ensure the continuity of gas supply to India. In fact General Musharraf, in no uncertain terms, said: “I cannot understand why the previous government rejected the proposal of an overland gas pipeline from Iran to India going through Pakistan. It is in the economic interest of all the three.” He added that he was certainly in favour of the pipeline from Iran, which would be extended to India after Pakistan used the gas that it wanted. The $2.5 billion pipeline project, which stretches to over 2,500 km, would bring gas from the Assuliyeh gas fields into India via Multan in Pakistan. It will travel 1,100 km in Iran, around 700 km in Pakistan, and another 850 km in India before it gets connected to the HBJ (Hazira-Bijapur-Jagdishpur) pipeline.

However, this is not the only route to get gas into India. The other route is the offshore route. In fact, India has been reluctant to give the go-ahead to the onshore pipeline project through Pakistan for the reason that India could be held at ransom as Pakistan could “turn-off” the tap in case the relationship between the two countries turned sour. With such a risk, there would be no financiers or companies willing to risk making huge investments in such a project.

Added to that, a pipeline project would need an assured set of buyers too. No industry in India—such as fertiliser or power—can run the risk of having a stoppage in supply of their feedstock. If there is a risk in fuel supply, even these projects would not get finances to set up the project. After Mr Vajpayee’s visit to Iran earlier this year, the alterative offshore plans envisaged a foreign consortium being the link between the two countries—buying gas from Tehran and selling it to India for a 30-year period.

The proposed pipeline would be an under-sea one—running from Assuliyeh in Iran to Jamnagar. The catch in this alternative is the cost. This project would prove much more expensive with an estimated investment requirement of around $6 billion—or almost three time that of the onshore project. After Iran’s interest in pursuing with the pipeline project, India was to conduct a feasibility study on the deep sea option on a cost sharing basis and a mutually agreed consultant was to be invited to carry out the survey which is expected to take about a year. While Broken Hills Property (BHP) is expected to do the land feasibility study, companies such as Snamprogetti of Italy is understood to be in the race for the offshore study contract. Other companies such as Gazprom of Russia have also shown interest in helping India in lay underwater pipelines. Gas Authority of India Limited (Gail) and the National Iran Gas Company (NIGC) are the two main companies which would spearheading this project.

With India actively pursuing the off-shore project, Pakistan would be the loser if it misses out on the opportunity to provide access to the onshore gas pipeline project into India. Pakistan would be in a commercially win-win situation if it does allow the pipeline to be routed through it. The first being royalty, the second being the investment that would be coming into the country for the Pakistan leg of the pipeline project. However what would be more important is the indicator and signal it would send to the international business community if it allows the pipeline to go through.

Given the gas demand for India, which is expected to touch 231 million metric standard cubic metres (MMSCMD) by 2006-2007 from the present level of 60 MMSCMD, India is willing to pursue the offshore route even it costs more. For instance, even if a risk element is added to the onshore route, thereby increasing the cost of the project, the offshore project would always be more expensive, thereby hiking the feedstock price to the Indian industry.

Therefore, India should not give up pursuing the option of routing the pipeline through Pakistan. All it needs to do is to remind General Musharraf what he said after he assumed office: Pakistan would be willing to enter into any arrangement for the security of the pipeline to ensure the continuity of gas supply to India. If this is agreed upon, then the spirit of the Agra summit would get reflected in Pakistan benefiting commercially too.