PAKISTAN-IRAN STRATEGIC ENERGY COOPERATION 1


Mehmood-Ul-Hassan Khan
Energy security is the hot topic in regional geo-political and geo-strategic affairs. It is also 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 the 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 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. Our 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 high-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 investing or making 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 to cooperate 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 the ongoing projects. Pakistan and Iran agreed to establish a monitoring committee at ministerial level to fix a schedule for the 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 100mw 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 additional 1,000mw 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 100mw 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 1,000mw capacity near Zahidan could be made available for export of power to Pakistan in addition to the earlier agreed 1,000mw.

Water resources of Pakistan

At present a little over 54.5 million acres of our land is under cultivation in our four, while a vast area of 22.5 million acres is waiting to be cultivated. There is a shortage of water and we may also be encountered by an energy crunch to the tune of 1700 MW by the year 2007 that would be 5000 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 million at the time of independence. Currently, Pakistan has the capacity of storing only 11 per cent of total surface water, while it is generating only 12 per cent 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 the supply and demand. The agricultural base is also shrinking ought to be heeded seriously if we have to gain food autarky. Industrial development is also hostage of high cost of production. According to an estimate, the country has been losing $1 billion 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.
Country Above 50 Ft Above 200 Ft
China 253 59
Turkey 113 22
India 28 6
Iran 52 28
Japan 97 35
Pakistan 3 1
Source: World Bank (2006)
According to Wapda in Pakistan 6500mw of electricity is being produced by the IPIs. The growing demand of electricity is 18000mw while the existing availability of power is 13500mw. 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 per cent 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 the projects of water and power including hydropower projects with a total capacity of about 16,000mw requiring an approximately investment of $26 billion by 2025; coal power projects with a total capacity of about 6,000mw by 2015 requiring an approximately investment of $7 billion; projects of alternate energy for generation of about 1,000mw by 2015; rehabilitation and reinforcement of the Tand system and its system for dispersal of power of new generating plants requiting an investment of about $4.7 billion.

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 workout the modalities. The minister also stated that Pakistan was interested to purchase more power transformers of various capacities from Iran with.

Iran’s electricity production capacity and electricity cooperation according to FACTS Global Energy (2005) Iran’s electricity demand is projected to grow 6 per cent annually through 2015. In 2004, Iran generated 156 billion kilowatt-hours (Bkwh) and consumed 145 Bkwh. 146 Bkwh was generated by conventional thermal electric power, and the remaining 11 Bkwh was generated by hydroelectric power.

Capacity Year 2004
Electricity installed capacity 34.3 giga-watts
Electricity production capacity 156 bn kilowatt hour

Pakistan is presently facing a power deficit of around 4,000mw. It will need to add 6,000mw 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 million credit facility to Pakistan for laying the transmission line which will supply 1000mw electricity. Both countries also signed a Memorandum of Understanding (MoU) according to which Tehran will provide 1000 mw 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 export development bank of Iran will extend credit of $55 million to NTDC/Pepco for the construction of the transmission line in Pakistan (70 km). The balance 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 Sahara Hydel Power Project on the river Chenab and raised its capacity from initially proposed 65 megawatts to 130 megawatts 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 billion barrels of proven oil reserves, or roughly 10 per cent 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 southwestern 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 million barrels per day (bbl/d) of total liquids, of which 3.8 million bbl/d was crude oil, equal to 5 per cent of global production.

Major Iranian oil field production and reserves, 2006

Field Production Capacity Reserves mln
(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 3258 59,000
Source: Global insight (December 2006)

With a continuous the government of Pakistan requested supply of oil on deferred payment to Iran. It was also discussed during the recent visit of Iranian delegation. It is seemed that in very near future both the 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 90-day deferred payment. Iran is currently supplying 10,000 barrels of crude oil per day to Pakistan on 30-day deferred payment.

A ship carrying 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 last month 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 barrels per day 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 million.

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 gas pipeline have been cleared. The IPI gas pipeline ($ 7.4 billion) has been finalized during the recent visit of the Iranian President Mahmoud Ahmedinejad. In addition to it, Tehran would provide Pakistan 1100 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 ranges from $400 million to $750 million a year and Pakistan may be able to earn, as much as $500 million a year if the proposed gas pipeline is to materialise. In fact, Pakistan stands to earn about $14 billion in 30 years, including $8 billion in transit fee, $1 billion in taxes and $5 billion 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 million cubic metres of gas (2.2 billion cubic feet) daily to Pakistan and India, half for each country, but capacity would be raised later to 150 million cubic metres. Talks on the 2,600-kilometre (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 percent to 78 percent 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. The trilateral deal envisaging the supply of gas to China through Pakistan is also a good omen for regional cooperation that will work to every one’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 Islamic regime is significant. It shows the revival of regionalism against the onslaught of brutal globalization. It reflects the demise of uni-polarity arena. It also shows the defiance of US imperialisms drive.

Through IPI gas pipeline project it is hoped that Pakistan would be successfully normalize their relations with Iran and India. It is estimated that energy diplomacy may also bring meaningful change in IndiaÕs 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 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 is seemed that the two countries are ready to start the $7 billion gas pipeline project even if India walks out of the plan. Iran said it has completed 18 per cent 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 trillion cubic feet (Tcf) in proven natural gas reserves. Iran holds the world’s second largest reserves after Russia. Around 62 per cent 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 per cent annually for the next decade.

World natural gas reserves by country, January 1, 2007
Name of the country Trillion cubic feet
Russia 1380259.8
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 71m cubic meters per day, which is estimated to increase by 50 per cent in the next five years. Recently, the government of Pakistan increased gas tariff from 8 to 17 per cent. 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 mmcfd 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 fulfill the rising demands in the days to come.

Wind farm

During their visit the Iranian delegation signed a MoU which was done between the Planet Energy Pvt Ltd and Sunir Co of Iran for the joint development of a 50MW wind farm in Pakistan. The MoU was signed by Chairman Planet Energy Pvt Ltd, Tariq Sayeed and the Managing Director Sunir Co 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 trade delegation and holding of joint trade exhibitions. For the 2006-07 period the total volume of trade was around US$ 573.30 million, out of which imports from Iran were worth US$ 405.8 million and Pakistan’s export to Iran accounted for US$ 167.5 million, reflecting a considerable trade gap of US$ 238.3 million 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 accounts for 44.89 percent of total exports. It is estimated that bilateral trade volume would be $ i1 billion up to 2008-09. It is strongly suggested that businessmen of Pakistan and Iran could initiate joint ventures in the sectors of agriculture, dairy & food processing, SMEs, oil & gas exploration, hydel & coal based energy projects, paper & 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 Pak-Iran JEC shall continue to deliberate on issues of joint economic interest that focus 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 the governor Fasihi signed 16 MoUs with chambers and trade delegations in short time and arranged meeting with 1800 members to enhance bilateral trade. He invited to President ICCI to send business delegation to Iran for enhancing trade as both countries have good relations. It is strongly suggested that Pakistan and Iran should make joint study on bilateral trade ties and their share in global trade. Iran should identify potential items of import and export between two countries. 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 its time for the needful. Pak-Iran Joint Economic Commission and Preferential Trade Agreement (PTA) for enhancement of bilateral trade are trying their levels bets 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 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 for the welfare and benefits of the people of two countries. God has enriched the both Muslim countries 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 great and closer cooperation. Iranian authorities and Punjab Industrial Estates Development and Management Company (PIEDMC) inked a MoU to enhance bilateral economic cooperation for investment opportunities in economic zones of both the countries. According to 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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One thought on “PAKISTAN-IRAN STRATEGIC ENERGY COOPERATION

  • KHWAJA AFTAB ALI, Florida, USA

    FIVE REGIONAL CITIES should be upgraded with in the provinces in Pakistan. Regional cities of Dera Ismail Khan in NWFP, Gawadar/ Qalat in Balouchistan, Sukkar/ Larkana in Upper Sind, Jehlam/ Rawalpindi and Multan in Punjab province. These regional cities have been ignored by the federal and provincial governments although these cities have their own history, culture and languages.Dera Ismail Khan in south of Pakhtun khwa/MWFP is under seige, Multan/DG Khan in south of Punjab is next target of religious extremists,Sukkar/ Larkana is being rule by criminals, Gawadar/ Qalat is trouble some. The people of these regions have to travel to provincial capitals for every small issue and requirement of the daily life which should be provided in nearby cities. A good number of population travel to big cities for their survival to earn livelihood as the local feudal own majority land and keep the common man as their slaves. Creation of regional government and upgrading of the regional cities will save a lot of money and time of the poor people of these regions. Circuit benches of the High Courts are already working in these areas and only requirement is the additional staff of different departments involved in additional work at the provincial capitals. The concern authorities should immediately consider to upgrade the regional cities. And immediate attention should be given upgrade/build the airports, special economic zones,TV station, civic center, libraries,hospitals, educational institutes and investment opportunities for Pakistanis living abroad and foreign firms to create jobs in the area as majority population in rural Pakistan do not have enough resources to survive. It remind me the condition of pre Islamic revolution of Iran in Shah time when the rural Iran was ignored and the capital Tehran was developed in a way to call it Paris of Middle East with modern life style. Couple of other big cities like Isfahan and Caspian sea was taken care of because of foreign tourists but rural area was ruled by cruel police and intelligence. Then what happen rural population supported the Islamic revolution and moved to Tehran and other big cities later on. The new government after revolution developed, built and upgraded the rural areas of Iran accordingly. A fund to upgrade/build these regional cities in Pakistan should be intoduced by public and private sector and Pakistani government, our foreign friends and Pakistanis living abroad may be asked to participate in this development mission in the country..KHWAJA AFTAB ALI,( former secretary, Iranian embassy, Saudi Arabia,1979-88) Advocate High Court & I.P. Attorney-first & the only Pakistani lawyer who earned Intellectual Property laws scholarship in USA,presently residing in Florida, USA. all_languages@hotmail.com