Pakistan-Iran strategic energy cooperation

Mar 06, 2009 01:00 AM

by Mehmood-Ul-Hassan Khan

Energy security is the hot topic in regional geo-political and geo-strategic affairs. It is also an essential part of international politics and diplomacy. The extended cooperation of China, Japan and even South Korea in African and Latin American countries verify the importance of energy resources.
In the economic arena, energy seems to be centre point as more energy means more power industrial and political. Hot pursuits of energy resources have also been instrumental for peace building. It was most recently observed in the case of the Iran-Pakistan-India gas (IPI) pipeline.

Pakistan is suffering from an acute energy crisis. From industry to production and from education to health every sector has been badly affected with this energy/power shortage. Despite all assurances, even the emergency measures of the present government seem unable to resolve the energy's woes. Pakistan's cities and villages are under the siege of darkness and hope for betterment is very limited in the near future.
To strengthen the bilateral strategic ties, recently a highly-powered delegation from Iran headed by Engr. Parviz Fatah, the minister of energy, visited Pakistan on the invitation of Federal Minister of Water and Power, Raja Pervez Ashraf, from December 29-31, 2008. The delegation showed great interest to invest or to create joint ventures in the energy, water and power sectors.

The Iranian delegation discussed/met with different high officials of the government and visited different ministries and concerned places in order to explore all possible avenues for cooperation in the energy sectors. Both the countries have signed a joint declaration for further bilateral cooperation in the power sector. They also agreed to expedite the implementation of ongoing projects.
Pakistan and Iran agreed to establish a monitoring committee at ministerial level to fix a schedule for completion of the ongoing and proposed projects, remove the impediments and to take remedial measures in this respect. It was also finalised that the transmission lines for import of 100 MW would be completed by an Iranian company by the end of 2009. Furthermore, it was also agreed that while carrying out the feasibility study for the transmission lines, a provision for transmission of an additional 1,000 MW should also be accommodated.

Iranian deputy minister of energy, Abbas Aliabadi, and managing director of PEPCO, Fazal Ahmed Khan, were nominated as key people from their respective countries for implementation of the agreed and existing projects. Main projects: both the countries were not satisfied with the slow pace of progress on two projects, namely the import of 100 MW of power for the Gwadar Port construction of the transmission line and feasibility study for 1,000 MW transmission line between Quetta and Zahidan.
The Iranian delegation made an offer that a gas-based power plant of 1,000 MW capacity near Zahidan could be made available for export of power to Pakistan in addition to the earlier agreed 1,000 MW.

Water resources of Pakistan
At present a little over 54.5 mm acres of Pakistan's land is under cultivation, while a vast area of 22.5 mm acres is waiting to be cultivated. There is a shortage of water and the country may also be encountered by an energy crunch to the tune of 1,700 MW by the year 2009 that would be 5,000 MW by the year 2010. National demand for electricity has been and would keep on growing rapidly.
Pakistan inherited 60 MW of power generation capacity for a population of 31.5 mm at the time of independence. Currently, Pakistan has the capacity of storing only 11 % of total surface water, while it is generating only 12 % of total hydropower potential.

The rapid rise in population and the need to grow more crops compels the government to construct more water recoveries to reduce the increasing parity between supply and demand. The agricultural base is also shrinking and ought to be heeded seriously if we have to gain food autarky.
Industrial developmentis also hostage of high cost of production. According to an estimate, the country has been losing $ 1 bn every year for not having a big storage that could provide assured supply of water to the fields at the right time. There is also an acute need for electricity to satisfy growing demands from industry and domestic consumers.

According to Wapda, in Pakistan 6,500 MW of electricity is being produced by the IPIs. The growing demand of electricity is 18,000 MW while the existing availability of power is 13,500 MW.
Pakistan's ministers for water and power invited the Iranian delegation to come forward and participate in the mega hydro power projects as the power sector was viable business, growth in power had been witnessed as 10-12 % and presently 16 Independent Power Producers (IPPs) are generating electricity in the country.

Collaborations in water and power sector
Pakistan officials briefed that there were attractive investment opportunities in water and power sectors in the country.
Pakistan identified and shared information on different water and power projects including hydropower projects with a total capacity of about 16,000 MW requiring an approximate investment of $ 26 bn by 2025; coal power projects with a total capacity of about 6,000 MW by 2015 requiring an approximately investment of $ 7 bn; projects of alternate energy for generation of about 1,000 MW by 2015; rehabilitation and reinforcement of the Tand system and its system for dispersal of power of new generating plants requiring an investment of about $ 4.7 bn.

The Iranian delegation stressed the need for enhancing bilateral cooperation and offered supply of more power. It offered to export electricity from its port at Chabahar, which is the nearest to Gwadar port where a power plant of 500 MW is being constructed by Iran and will be ready within the next six months.
The Minister for Water and Power, Raja Pervez Ashraf, said that Pakistan would welcome such an initiative and should extend full co-operation and work out the modalities. The minister also stated that Pakistan was interested to purchase more power transformers of various capacities from Iran.

According to FACTS Global Energy (2005) Iran's electricity demand is projected to grow 6 % annually through 2015.
In 2004, Iran generated 156 bn kWh and consumed 145 bn kWh. 146 bn kWh was generated by conventional thermal electric power and the remaining 11 bn kWh was generated by hydroelectric power.

Capacity year 2004
Electricity installed capacity -- 34.3 GW
Electricity production capacity -- 156 bn kWh

Pakistan is presently facing a power deficit of around 4,000 MW. It will need to add 6,000 MW to the national grid in a year to end load shedding in the country. Pakistan and Iran discussed avenues of more electricity trade. Iran has agreed to extend $ 55 mm credit facility to Pakistan for laying the transmission line which will supply 1,000 MW of electricity.
Both countries also signed a Memorandum of Understanding (MoU) according to which Tehran will provide 1,000 MW of electricity to Pakistan via Balochistan. Pakistan is currently importing 40 MW from Iran for coastal areas of Balochistan. The import of power is being enhanced by additional 100 MW for Gwadar port, for which an agreement has already been signed. It was also informed that M/s Sunir of Iran would construct the transmission line on both sides of the border for which negotiations on award of contract were in progress.

It was decided that the Export Development Bank of Iran will extend a credit of $ 55 mm to NTDC/Pepco for the construction of the transmission line in Pakistan (70 km). The balance of 50 km on the Iranian soil will be constructed by Iran itself, which will be made part of the tariff.
Furthermore, it was apprised that Iran was already working on the Sahara Hydel Power Project on the river Chenab and raised its capacity from the initially proposed 65 MW to 130 MW through the Independent Power Producer.

Iran is OPEC's second-largest oil producer and the fourth-largest crude oil exporter in the world. According to Oil and Gas Journal (2008), Iran has 136 bn barrels of proven oil reserves, or roughly 10 % of the world's total proven petroleum reserves as of January 1, 2007.
Iran has 40 producing fields, 27 onshore and 13 offshore, with the majority of crude oil reserves located in the south-western Khuzestan region near the Iraqi border.

Name of the country -- billion barrels
Saudi Arabia -- 259.8
Canada -- 179.2
Iran -- 136.3
Iraq -- 115.0
Kuwait -- 99.0
UAE -- 97.6
Venezuela -- 80.0
Libya -- 41.5
Nigeria -- 36.2
Source: Oil and gas journal (January 2007)

According to Oil and Gas Journal (2008), Iran is OPEC's second-largest producer after Saudi Arabia.
In 2006, Iran produced an estimated 4.2 mm bpd of total liquids, of which 3.8 mm bpd was crude oil, equal to 5 % of global production.

Major Iranian oil field production and reserves, 2006
Field -- Production capacity -- Reserves mm (thousand (nbbi/d) of barrels)
Ahwaz-Asmari -- 700 -- 10,100
Marun -- 520 -- 9,500
Gachsaran -- 480 -- 8,500
Karanj-Parsi -- 250 -- 4,650
Agha Jarn -- 200 -- 8,700
Nowrooz and Soroosh -- 200 -- 6,000
Doroud 1 and 2 -- 200 -- 600
Rag-e-Safid -- 180 -- 2,400
Bangestan -- 158 -- 6,500
Abu Zar -- 140 -- 50
Sirri A and E/C and D -- 130 -- 1,200
Salman -- 100 -- 800
Major filed total 3,258 -- 59,000
Source: Global insight (December 2006)

The government of Pakistan requested supply of oil on deferred payment to Iran. It was also discussed during the recent visit of the Iranian delegation. It seemed that in the very near future both countries are likely to sign an accord under which Pakistan will get oil supply on deferred payment.
It is hoped that Iran would supply 50,000 barrels of crude per day on a 90-day deferred payment. Iran is currently supplying 10,000 barrels of crude oil per day to Pakistan on a 30-day deferred payment.

A shipcarrying 65,000 tons of crude oil from Iran arrived at the port under the deferred payment facility. Pakistan Refinery Limited (PRL) had signed an agreement earlier with National Iranian Oil Company (NIOC), which had extended the credit facility for the payment of crude oil to 90 days from 30 days.
Bosicor Refinery Limited (BRL) had also signed the agreement. The refinery would now import up to 30,000 bpd of Iranian light crude instead of 10,000 barrels. Every month the PRL would at least import two cargoes of 65,000 tons each. The value of each cargo ranges between $ 22-$ 23 mm.

Possible benefits
It is calculated that the possibility of extending the 90 days deferred payment for oil facility would reduce the pressure on Pakistan's balance of payments and strengthen Pakistan's foreign exchange reserves. It could also provide some breathing space which would allow the government to undertake appropriate fiscal and monetary reforms.
Moreover, Iranian crude oil can also undergo value addition in Pakistan and be refined for exports which would essentially imply an oil sector able to generate its own revenue in foreign exchange and thereby meet a significant portion of the cost of crude.

IPI gas pipeline
The hurdles in the way of the long awaited Iran-Pakistan-India (IPI) gas pipeline have been cleared. The IPI gas pipeline ($ 7.4 bn) has been finalized during the recent visit of the Iranian President Mahmud Ahmadinejad. In addition to it, Tehran would provide Pakistan 1,100 MW of electricity per day which would be used to control the high ratios of energy shortage.
It will bring economic prosperity to all the involved countries. Especially Pakistan can enhance its strategic and economic significance by permitting its territory to be used for the transit. Transit fees range from $ 400 mm to $ 750 mm a year and Pakistan may be able to earn, as much as $ 500 mm a year if the proposed gas pipeline is to materialise. In fact, Pakistan stands to earn about $ 14 bn in 30 years, including $ 8 bn in transit fee, $ 1 bn in taxes and $ 5 bn in savings.

If all goes well, construction could start very soon and the pipeline, linking the world's second largest gas reserves to the fast growing South Asian economies, could be completed by 2012. It would initially transport 60 mm cm of gas (2.2 bn cf) daily to Pakistan and India, half for each country, but capacity would be raised later to 150 mm cm.
Talks on the 2,600-km (1,615-mile) Iran-Pakistan-India pipeline began in 1994 but have been stalled by tensions between India and Pakistan and disagreements over transit fees. Iran has scaled down its earlier demand to link the price of gas from 85 % to 78 % of crude oil price under the still to be approved Iran-Pakistan-India (IPI) gas pipeline deal.

Geo-political and geo-strategic implications
The agreements also showed Pakistan's will to come out of the total subordination to the US. Pakistan needs to build peace with its neighbours to ensure a stable future for itself. Thetrilateral deal envisaging the supply of gas to China through Pakistan is also a good omen for regional cooperation that will work to everyone's benefit.
On the political front, the pumping of Iranian gas into Pakistan, India and China at a time when the US opposes such dealings with Iran's regime is significant. It shows the revival of regionalism against the onslaught of brutal globalization. It reflects the demise of a uni-polarity arena. It also shows the defiance of the US's imperialisms drive.

Through the IPI gas pipeline project it is hoped that Pakistan would successfully normalize its relations with Iran and India. It is estimated that energy diplomacy may also bring meaningful change in India's foreign policy and ongoing CBMs. The completion of these projects will open the door for the energy wealth of the region -- coal in India, gas in Pakistan and Bangladesh, hydropower in Nepal and Bhuta and renewable energies in Sri Lanka and the Maldives -- that need to be pooled and used in many ways that are more conducive to the prosperity of the people than their exploitation separately.
It seems that the two countries are ready to start the $ 7 bn gas pipeline project even if India walks out of the plan. Iran said it has completed 18 % of the work for the pipeline to bring gas from its South Pars field to the Iran-Pakistan border. It is a mega project which could change the energy security concerns of Pakistan and India in the days to come.

Iran is also the world's third largest consumer of natural gas. According to the Oil and Gas Journal (2008), Iran has an estimated 974 tcf in proven natural gas reserves. Iran holds the world's second largest reserves after Russia. Around 62 % of Iranian natural gas reserves are located in non-associated fields, and have not been developed.
Major natural gas fields include: South and North Pars, Tabnak, and Kangan-Nar. In 2005, Iran produced and consumed 3.6 tcf of natural gas and its consumption is expected to grow around 7 % annually for the next decade.

World natural gas reserves by country, January 1, 2007
Name of the country -- tcf
Russia -- 1,380,259.8
Iran -- 974
Qatar -- 910
Saudi Arabia -- 239.5
Kuwait -- 99.0
UAE -- 214.4
USA -- 204.4
Nigeria -- 181.9
Algeria -- 161.7
Source: Oil and gas journal (January 2007)

Gas supply in Pakistan is currently 71 mm cmpd, which is estimated to increase by 50 % in the next five years. Recently, the government of Pakistan increased the gas tariff from 8 % to 17 %. At the same time, gas production in Pakistan is expected to increase substantially.
It is assumed that in the near future Pakistan will face a shortfall of 600 mm cfpd of natural gas by the year 2009 despite recent gas discoveries, which would be insufficient to meet the rising demand. So, IPI would be a viable alternative option to fulfil the rising demands in the days to come.

Wind farm
During their visit, the Iranian delegation signed a MoU which was done between Planet Energy and Sunir of Iran for the joint development of a 50 MW wind farm in Pakistan. The MoU was signed by the Chairman of Planet Energy, Tariq Sayeed, and the Managing Director, Sunir Reza Ebadzadeh.
It is agreed that both companies would jointly invest in developing this wind farm. It is indeed a great development in the renewable energy sector, especially wind.

Bilateral trade and economic cooperation
Pakistan and Iran agreed to enhance bilateral economic cooperation in various sectors, including energy, railways, roads and trade, besides exploring the need for establishing a joint shipping company to boost maritime cooperation and mutual trade. The present volume of trade between the two countries showed that the bilateral trade potential is untapped.
Pakistan and Iran should enhance their economic cooperation as the existing two-way trade volume has so far failed to benefit from the huge existing potentials between the two countries. The main problem is lack of physical as well as institutional connectivity between the two countries and proposed to establish Pak-Iran joint shipping company that would enhance connectivity leading to increase in bilateral trade.

Lack of information is also an obstacle in the way of bilateral trade between the two brotherly nations and this goal could be achieved by frequent exchange of a trade delegation and holding of joint trade exhibitions. For the 2006-07 period, the total volume of trade was around $ 573.30 mm, out of which imports from Iran were worth $ 405.8 mm and Pakistan's export to Iran accounted for $ 167.5 mm, reflecting a considerable trade gap of $ 238.3 mm against Pakistan.
An analysis of bilateral trade shows that Pakistan is constantly in the negative balance. Cereals were the largest export items to Iran, which account for 44.89 % of total exports. It is estimated that the bilateral trade volume would be $ 1 bn up to 2008-09. It is strongly suggested that businessmen of Pakistan and Iran could initiate joint ventures in the sectors of agriculture, dairy and food processing, SMEs, oil and gas exploration, hydel and coal based energy projects, paper and paper board, sugar, cement, chemicals, transport and communication etc.

Both the sides expressed their government's resolve to promote bilateral trade and economic ties between two brotherly countries. Both the sides exchanged views on matters of bilateral interest and reiterated their commitment to strengthen mutual ties. Both the sides resolved that the Pak-Iran JEC shall continue to deliberate on issues of joint economic interest that focus on cooperation in energy, oil, trade and other sectors of bilateral interest to the mutual benefit of two countries.
Both sides also agreed to promote cooperation between the ports of Chabhar and Gwadar and possibly ports of Shahid Jajaee and Karachi as well. In this regard both the delegations agreed to facilitate exchange of information and delegations from the respective ports.

During his recent visit, governor Fasihi signed 16 MoUs with chambers and trade delegations in a short time and arranged a meeting with 1,800 members to enhance bilateral trade. He invited the President of ICCI to send a business delegation to Iran for enhancing trade as both countries have good relations.
It is strongly suggested that Pakistan and Iran should undertake a joint study on bilateral trade ties and their share in global trade. Iran should identify potential items of import and export between two countries. The Pak-Iran Joint Committee on Road Transportation in their recent meeting promised to exempt Pakistani businessmen from undergoing medical tests at the time of submitting application for business visa. Highlighting the present banking system as a hurdle in bilateral trade between Pakistan and Iran, the Iranian government has planned to open a branch of Export Promotion Bank in Karachi this year and reciprocally a branch of National Bank of Pakistan may open in Iran.

There is great scope for bilateral cooperation in the trade of rice, fresh citrus fruits and textile products to Iran. Bilateral trade potential is not properly utilised and now it is time for the needful. The Pak-Iran Joint Economic Commission and Preferential Trade Agreement (PTA) for enhancement of bilateral trade is trying to enhance bilateral trade between the two countries. Pakistan is the fifth largest livestock producer having a huge halal food market. There is also a need of Pak-Iran joint ventures for trading of halal food.
According to economists and experts, Punjab is offering tremendous opportunities to Iranian investors in various sectors. There is a lot of room for two countries to enhance social and economic ties in many fields.

Pakistan and Iran are cooperating with each other in several sectors. It is predicted that Pak-Iran private sectors through joint ventures and collaborations can help boost and accelerate the pace of industrial growth in the region of welfare and benefits for the people of two countries. Both Muslim countries are enriched with plenty of natural resources and minerals deposits which could be fully exploited and harnessed for the development of the region. Successful launching of joint ventures in textile, petrochemicals, livestock, food processing and other allied sectors would definitely pay the dividends.
Governor of Iranian Province of Khorasan, Mohammad Javad Mohammdi Zadeh, during his visit stressed the need for greater and closer cooperation.

Iranian authorities and Punjab Industrial Estates Development and Management Company (PIEDMC) signed a MoU to enhance bilateral economic cooperation for investment opportunities in economic zones of both countries. According to the MoU, both the authorities agreed to encourage and promote investment and cooperation; establish offices and keep each other informed about their activities as well as exchange information and publications.
It was also agreed to identify areas of investment for mutual benefits under joint ventures and launch joint research and collection of statistical data for exploring possibilities of trade, investment, industrial and technological cooperation. The Governor General said that establishment of Free Trade Zones in Iran and Pakistan could be helpful in boosting the existing level of two-way trade volume. And both the government should concentrate on FTZs.

Concluding remarks
Prospects of Pak-Iran energy/power cooperation are bright. The bilateral trade and economic cooperation is on the rise. The emerging geo-political and geo-strategic scenarios within the region and around the globe stress the need to have a closed strategic cooperation and friendship between the two countries.
The binding of religion, culture, history and heritage may also be further cemented through the energy/power cooperation. The socio-economic, geo-political and geo-strategic benefits are tremendous and the only thing needed is strong political will and vision to establish everlasting energy/power cooperation between the two countries.

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