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A recent official statement issued by the former PDM government in the National Assembly has confirmed that the Iran-Pakistan gas pipeline project has been delayed indefinitely. The former Minister of State for Petroleum, Musadik Malik, informed the House that Pakistan had formally invoked a “force majeure and excusing event” clause in its contract with Iran.
This move suspends Pakistan’s contractual obligations regarding the project due to concerns about potential US sanctions. Malik further elaborated that project activities would only resume once sanctions on Iran are lifted and there is no longer a perceived threat to Pakistani entities.
On the other hand, Iran has refused to accept the force majeure notice served to it by Pakistan to suspend the work on the multibillion-dollar Iran-Pakistan (IP) gas pipeline project.
The project was supposed to be completed by Dec 2014. Even just a few months ago, the PDM government indicated that the project was progressing. Yet, the recent statement in parliament strongly suggests that the pipeline project has come to a standstill.
Before completely abandoning the project, it is essential for the government to take certain factors into consideration. Firstly, especially in light of efforts to attract foreign investment to Pakistan through a dedicated investment body, the country’s reputation could be negatively impacted by scrapping a project that was initially celebrated with great enthusiasm.
Additionally, if the dispute is escalated to arbitration, it could strain bilateral relations with Iran. Pakistan must also evaluate whether it is prepared to bear substantial financial penalties resulting from reneging on the agreement. Rather than giving up outright, it is prudent to explore all available legal and diplomatic avenues to salvage the project, which could provide much-needed gas resources for Pakistan. Simultaneously, efforts should be made to persuade the US to exempt this particular scheme from the sanctions.
Now when Tehran has refused to accept Pakistan’s notice, the matter can be taken to arbitration and under the penalty clause Pakistan would be bound to pay $1 million per day to Iran from Jan 1, 2015 for failing to complete the pipeline’s construction on its territory. In times of an economic crisis can we really afford to pay such penalities is a question the incoming goverment must consider.
