SDPI wants renegotiation of Pak-Iran gas deal
The News
Monday, 28th Oct 2013
Islamabad/Rawalpindi
The pricing formula for the Iran-Pakistan Gas Pipeline agreed upon in 2009 will be an economic death sentence for Pakistan, says the Sustainable Development Policy Institute (SDPI) report.
It is not too late to renegotiate the price however, as the report recommends to the Government of Pakistan to re-negotiate gas pricing with Iran.In 2007, Pakistan agreed on an average crude oil parity of 45 percent of crude oil parity but this saw a dramatic increase to an 85 percent crude oil parity under the 2009 Gas Sale Purchase Agreement (GSPA) with Iran, according to the report. Pakistan’s Economic Coordination Committee (ECC) on 10th April 2007, approved gas purchase formula, indexed with Japan Customs Cleared Crude (JCC), a crude oil price index. In year 2007, the average gas production price in Pakistan was $2.6 MMBTU.
"According to the agreed formula, the gas rate at the Pakistan border was to be $6.56. $7.06, $7.87 $8.6 per MMBTU and $9.3 in case oil prices increase to $80, $90, $110 and $1200 per barrel, respectively," says Arshad H. Abbasi, lead author of the report.
"The then Petroleum Secretary Finance Mr. Ahmad Waqar had briefed the media about the gas purchase formula."The Inter State Gas Systems (ISGS), representing Pakistan as buyer in this agreement, a company mandated by the Government of Pakistan to develop natural gas import projects and to serve as an interface between the GOP and other national and international agencies for the import and storage of natural gas in Pakistan, agreed to purchase natural gas from Iran at an average crude oil parity of 85 per cent.
"This means the Iranian gas at the Pakistan border would be US$15.38 per MMBTU, US$16.60 with correspondence USD 110 , $120 per barrel, respectively," according to the report.
This is contradictory to international gas pricing trends. The report looked at the Gas Sale Purchase Agreements between Spain and Algeria, United Kingdom and Norway, Spain with Norway and discussed the impact of oil crisis of 2008 on price of natural gas.
In June and July 2008, the crude oil price at Europe Brent Spot touched the figure of USD 132.32 per barrel, the correspondences; pipeline gas price was USD 9.55/MMbtu between Spain and Norway, USD 11.24/MMbtu between UK from Norway and USD 12.07/MMbtu respectively. This established that the then secretary petroleum and his brigade signed the highest percent of crude oil parity.
Pakistan’s team which negotiated the Pakistan-Iran Gas Pipeline Agreement failed to protect the country’s national interests, it seems when looking at this pricing formula.
Historically, Iran and Pakistan share centuries of history and have strong religious and cultural ties. Even Pakistan’s national anthem borrows its poetic vocabulary from Persian that percolates through Urdu. Pakistan is heavily influenced by the rich culture and language of Iran, and the two countries are not only neighbors, but also share brotherly ties. In this regard, it is incumbent upon the Government of Pakistan to renegotiate the price with this fraternal country and safeguard Pakistan’s national interests.
Looking at the report, it seems there needs to be the accountability of those responsible for this pricing agreement that could prove an economic death sentence for Pakistan.If the newly elected NAB chief wants to reinstate the image of the bureau as an effective body, it should rise to the occasion.
http://www.sdpi.org/policy_outreach/news_details1402.html