Pakistan will have to pay $18 billion as a fine if it terminates Iran-Pakistan (IP) gas pipeline agreement, the Ministry of Petroleum informed the Public Accounts Committee (PAC) on Wednesday.
The PAC held its meeting with Noor Alam Khan in the chair.
“Iran could hand Pakistan a whopping $18 billion penalty if Islamabad fails to complete a portion of the IP gas pipeline project on its territory by February-March 2024,” the ministry’s official told the committee.
The ministry official said the IP gas pipeline project has also sought permission from the US as well. “A written request is being sent through the Ministry of External Affairs,” he said, adding that if we do not lay the gas pipeline, Iran will impose more fine.
After deliberation, the committee unanimously decided to refer the matter to the US Embassy and the ambassador will be informed to give permission or pay $18 billion to Pakistan in order to pay Iran as fine. While discussing the audit objections raised by the Auditor General of Pakistan, it was revealed that an additional $27 million was paid to various LNG companies from 2017 to 2020.
“Various LNG companies were paid $27 million more than the agreed price,” the audit document said, adding that these $27 million were collected from public in gas prices and taxes.
As per available information, Iran has already finished a portion of the pipeline in its own territory from the gas field to the Pakistan border, where it should connect to the Pakistan portion. In September 2019, Pakistan’s Inter-State Gas Systems (ISGS) and the National Iranian Gas Company (NIGC) signed a revised agreement for the pipeline’s construction, which stipulates that neither Iran nor Pakistan will take the other to court for delays or impose fines until 2024.
The pipeline will allow Pakistan to start receiving 750 million cubic feet of gas from Iran daily once the pipeline is completed and commissioned. In February 2019, Tehran notified Islamabad of its intention to move forward with arbitration court proceedings for not constructing the pipeline in Pakistan’s territory within the specified time frame under the IP gas line project and invoked the penalty clause of the Gas Sales Purchase Agreement (GSPA).
The GSPA, signed in 2009 for 25 years, had a three-year construction period for Pakistan to lay down a 781-kilometer pipeline from the Iranian border to Nawabshah. The project was meant to be completed by December 2014, with operation starting on January 1, 2015, and implemented under a segmented approach where Iran would build its portion and Pakistan its own. Under the original agreement, Pakistan was to pay $1 million per day to Iran as of January 1, 2015, as stipulated under the arbitration clause. If Iran makes the threat real and moves forward with an arbitration court, Pakistan could face billions of dollars in penalties.