"The price demanded by Iran is high," Pakistan Petroleum Secretary Mahmood Salim Mahmood said in Islamabad today, without providing more details. "We have recommended a renegotiation of the price."
Iran, which has the world's second-largest natural-gas reserves, is in talks with Pakistan and India to export gas through a pipeline from its South Pars field. Tensions between India and Pakistan have delayed the project, while the US wants the South Asian nations to abandon the pipeline to isolate the Middle Eastern country over its progress in the field of civilian nuclear technology.
"We have told the government to go ahead with the project as other fuels are expensive," Hina Rabbani Khar, economic adviser to the Pakistan prime minister, said in an interview after a meeting of a steering committee today.
In its eighth meeting on Thursday, the Steering Committee on Iran-Pakistan-India (IPI) gas pipeline project ruled out shelving the project and decided to continue negotiations to reach an agreement on gas price between Tehran and Islamabad.
Iran and Pakistan have said earlier they will proceed with the project even if India backs out.
The Iranian section of the pipeline is 80 percent complete and 200 kilometers (124 miles) from the Pakistan border, Seyed Reza Kasaeizadeh, managing director of the National Iranian Gas Export Co., said in an interview in Vienna on Nov. 24.
The price for Iranian gas to Pakistan won't be less than $200 for 1,000 cubic meters, Kasaeizadeh said.
Tehran wanted the gas price to be 85 percent of the price of crude oil whereas Pakistan had offered to pay 60 percent of crude oil price as gas tariff. Both Pakistan and Iran have to show some flexibility as the project is in the best interests of both the countries.
The committee decided that a price between 60-85 percent of crude oil would be recommended as gas tariff to the cabinet for further negotiations with Tehran.
Pakistani Minister for Finance and Economic Affairs Hina Rabbani Khar told Daily Times that the government would go ahead with the proposed project as it would help the government overcome gas and electricity shortage.
Adviser on Petroleum and Natural Resources Asim Hussain chaired the meeting of the steering committee, which is a subcommittee of the Economic Coordination Committee.
The committee reviewed the current status of the project and decided to further negotiate with Iran the clauses related to the gas price formula. It, however, took a positive note of the bilateral deliberations held so on the project.
The steering committee's recommendations would be later placed before the cabinet for approval. Adviser on Finance Shaukat Tareen, Balochistan Chief Minister Aslam Raisani, Petroleum Secretary Mehmood Saleem Mehmood and Inter State Gas Systems Managing Director Hassan Nawab Khan were also present.
Pakistan and India, with a combined population of more than 1.3 billion people, need the pipeline to meet energy shortages. Relations between the two countries have been strained after the Nov. 26-29 terrorist attacks in Mumbai that India says were carried out by a group supported by Pakistan's official agencies. Pakistan says "non-state actors" were behind the attacks.
Natural gas meets half the energy needs of Pakistan. The country's daily output of 4 billion cubic feet of gas won't meet demand next year. Pakistani factories including textile makers are threatening to shut down because of gas and electricity shortages this and last month. The factories account for more than half of the country's exports.
This is while, Iran and Pakistan initiated a Gas Sales Purchase Agreement earlier this year.
On April 30, Ahmadinejad met Indian Prime Minister Manmohan Singh and said that the two sides had decided to address the issue in 45 days.
Indian and Pakistani officials also announced earlier this year that they had resolved almost all bilateral issues including transit fee which saw New Delhi boycotting IPI pipeline talks for about a year.
In June, Pakistan Foreign Minister Shah Mahmood Qureshi, who met New Delhi's Oil Minister Murli Deora said that the two sides have resolved all bilateral issues.
India has more or less agreed to give Pakistan a transit fee of $200 million per year, which is equivalent to $0.60 per million British thermal unit for allowing passage of the pipeline through that country.
India and Pakistan finally agreed in February 2007 to pay Iran $4.93 per million British thermal units ($4.67/GJ) but some details relating to price adjustment remained open to further negotiation. There was a breakthrough in the talks in April 2008 when Iranian President Mahmoud Ahmadinejad visited Pakistan and India.
According to the project proposal, the pipeline will begin from Iran's Assalouyeh Energy Zone in the south and stretch over 1,100 km through Iran. In Pakistan, it will pass through Baluchistan and Sindh but officials now say the route may be changed if China agrees to the project.
The gas will be supplied from the South Pars field. The initial capacity of the pipeline will be 22 billion cubic meter of natural gas per annum, which is expected to be later raised to 55 billion cubic meter. It is expected to cost $7.4 billion.
According to Indian ministry sources, the IPI gas pipeline is quite crucial for New Delhi as after signing of the agreement, 60 million standard cubic meters per day (mmscmd) of gas is expected to be supplied in phase-I, which will be shared equally between India and Pakistan.
In phase-II, 90 mmscmd of gas will be supplied to India and Pakistan. So far six meetings of the trilateral joint working group (JWG) of the participating countries have been held with the last meeting being held in New Delhi on June 28-29, 2007.
India, Asia's third-largest economy, can produce only half the gas it needs to generate electricity, causing blackouts and curbing economic growth. Demand may more than double to 400 million cubic meters a day by 2025 if the economy grows at the projected rate of 7 to 8 percent a year, according to the Indian oil ministry.
Iran plans to start exporting gas to Pakistan in 2011. Iran has completed half the pipeline, which can carry 110 million cubic meters of gas a day, National Iranian Gas Company (NIOC) said in April. India uses about 108 million cubic meters of gas a day, according to a BP Plc report.