Minister of State for Petroleum, Dr. Musadiq Malik, has announced that Pakistan is requesting the temporary halt of its contractual responsibilities within the Iran-Pakistan gas pipeline project, which involves billions of dollars. He cited the primary obstacle for Pakistan’s compliance with its commitments as the US sanctions imposed on the project.
Discussions to build the 2,775-km pipeline to deliver natural gas from Iran to Pakistan began in 1995, but it has yet to be completed mainly due to a lack of funds in Pakistan and complications posed by US sanctions over Iran’s nuclear activities.
Under an agreement signed between the two countries in 2009, the pipeline project was to be completed by December 2014 and would deliver 21.5 million cubic meters (760,000 million cubic feet) of gas per day to Pakistan. Construction would use a segmented approach, where Iran would lay down the pipeline on its side, and Pakistan was supposed to reciprocate on its territory.
In written testimony to the parliament seen by Arab News, Malik said work on the pipeline was stalled due to US sanctions on Iran and project activities would begin once the bans were removed and did not pose a danger to Pakistan’s state-owned entities.
“Pakistan has issued a Force Majeure and Excusing Event notice to Iran under the Gas Sales and Purchase Agreement (GSPA), which resultantly suspends Pakistan’s obligations under the GSPA,” Malik wrote, adding that Iran disputes the validity of the notice.
Force majeure is a clause included in contracts to remove liability for unforeseeable and unavoidable catastrophes that interrupt expected course of events and prevent participants from fulfilling obligations.
“The matter will be finally settled through arbitration, should Iran take this matter to arbitration,” Malik said. “The exact amount of penalty, if any, is subject to the outcome of the arbitration to be determined by the arbitrators.”
Malik said the Pakistani government was engaged with US authorities through diplomatic channels to seek an exemption from sanctions for the gas project.
“All necessary actions are being taken to construct the gas pipeline at the earliest,” he added.
Last week, during a visit to Pakistan, Iran’s Foreign Minister Hossein Amirabdollahian urged Islamabad to complete its part of the much-delayed project.
Under a penalty clause, Pakistan is bound to pay $1 million per day to Iran from Jan. 1, 2015, for failing to complete the pipeline’s construction on its territory. If Iran takes the case to an arbitration court and wins, Pakistan will likely have to pay a penalty amounting to billions of dollars.