Critical Choice: Pakistan’s Quest for Energy
Weekly Pulse
June 18-24, 2010
There is no other alternative for Pakistan except to overcome its severe energy crisis through external help. The country is unable to evolve national consensus on mega energy generation projects such as the Kalabagh Dam. The indigenous hydrocarbon resources of natural gas are either depleting fast or unable to cope with the demand of growing population and expanding economy.

Among the external sources of help to manage the country’s grave energy crisis, three choices are currently available. First is the Iran-Pakistan Gas Pipeline Project, which was finally agreed by the two countries in early June. The second is an agreement Pakistan concluded with China in January, under which China intends to build two additional nuclear reactors at Chashma.

The third alternative course for Pakistan to tackle its energy problem is the American offer to provide $4 billion in the next four years to help the country expand the power generation capacity of its existing dams such as Tarbela and support the building of more small and medium size dams or water reservoirs. Pakistan can, of course, also negotiate a similar nuclear cooperation deal with the United States as it concluded with India in 2006. However, for now, there is no indication yet that Washington is interested in offering such a deal to Pakistan. So, what should Pakistan do?

Iran’s Natural Gas

As for the Iran-Pakistan Gas Pipeline agreement, it has certainly run into serious trouble, if not because of the United Nations Security Council Resolution 1929 passed in early June, but probably due to the Iran sanctions bill the US Congress overwhelmingly passed on June 24 ional legislation that will impose more severe sanctions on Iran than the Security Council’s fourth successive sanctions did.

When US envoy Richard Holbrooke said recently during his tenth successive visit to Islamabad that Pakistan should not over-commit itself to the pipeline deal with Iran, his reference point was not the latest UN sanctions but the said US sanctions on Iran. UNSC Resolution 1929 does not bar Iran to pursue energy cooperation with the outside world. It specifically targets Iran’s external pursuits to expand its nuclear and ballistic missile capability.

The Congressional Iran sanctions bill, which is to become an act after President Obama signs it, paves way for the US government to take unilateral sanctions on Tehran over its controversial nuclear program. Under the bill, those businesses that help supply Iran with refined petroleum or help develop the country's own refining capacity would be penalized. Also, any financial institutions that do business with the Iranian Islamic Revolutionary Guard Corps or other blacklisted Iranian banks could be denied access to the U.S. financial system.

Pakistan’s official position is to abide by only the UN sanctions on Iran. Prime Minister Syed Yousuf Raza Gilani has said that Pakistan will go ahead with a plan to import natural gas from Iran even if the US levies additional sanctions. That makes sense. For the common man in the country is suffering daily due to extensive load-shedding, caused by an electricity shortage of almost 5000 megawatts. Its industry is not working in full capacity. The business is collapsing. Natural gas from Iran is meant to generate electricity. And in a country where anti-Americanism is already high, the US bid to prevent Pakistan from benefiting from Iranian gas will widen the gap between public sentiments and state policies as far as the crucial role the country is playing in the region in the US-led international counter-terrorism campaign.

The Iran-Pakistan gas pipeline deal would have provided 21.5 million cubic metres of natural gas for Pakistan on a daily basis, starting in late 2014. The pipeline could eventually be extended to India, which was also a partner in the deal before. In such eventuality, not only Pakistan but also economically growing and energy-starved India will benefit, and, consequently, India-Pakistan peace will flourish and the whole of South Asia will see the sort of stability the United States and the rest of the international community aspires for the region.

We have yet to see whether the Congressional law imposing more stringent sanctions on Iran negatively impacts the implementation process of Pakistan’s Strategic Dialogue with the United States or the delivery of $7.5 billion US civilian assistance to the country on a five-year basis under the Kerry-Lugar-Berman Act.

Another implication of the latest round of US and UN sanctions on Iran for the gas pipeline project pertains to the issue of securing international financing for its implementation. The total cost of the project is $7.6 billion. The Asian Development Bank is believed to have shown some interest in this regard. However, especially in the wake of US sanctions on Iran, then Japan and other influential donors of the ADB will most certainly toe the American line and will back out from the pledge to support the Iran-Pakistan Gas Pipeline Project.

China’s Nuclear Deal

In retrospect, if the prospects of energy deal with Iran look bleak, then what about the nuclear energy agreement with China? China has already built one nuclear reactor at Chashma. Another one is under construction. Under the January deal with China, two more reactors are to be built at Chashma, which will generate only 650 megawatts of electricity—and, that also, after several years. After all, it has taken the first one to complete in several years and the same is the case with the one under construction.

In the ongoing meeting of the Nuclear Suppliers Groups (NSG) in New Zealand, China is expected to take a strong position, arguing that a memorandum of understanding regarding the nuclear reactor deal it signed with Pakistan in January was signed well before 2004, when China joined the NSG. The United States, which opposes the deal, will surely argue to the contrary. This is despite the fact that Washington had done exactly the opposite in the case of India in 2008, when it secured the NSG approval for its nuclear deal with India. Like Pakistan, India is not a signatory of the nuclear Non-Proliferation Treaty (NPT) and, therefore, beyond the purview of the nuclear safeguards of the International Atomic Energy Agency (IAEA).

It is unclear yet whether China’s stand regarding its peaceful nuclear energy cooperation with Pakistan, which is legally and morally justifiable, prevails at the NSG meeting. Or, whether the Americans, because of the significant clout they have in this 46-member group of the world’s nuclear suppliers, succeed in securing an NSG decision that China cannot pursue the nuclear deal with Pakistan without getting exemption from the Group. Even if the Chinese succeed, it will take years for Pakistan to secure an additional 650 megawatts of electricity, even though its current shortfall in the country is almost 5000 megawatts.

Assistance from US

This leads us to the third alternative: that is, to benefit from the $4 billion the Obama Administration has offered to overcome the country’s serious energy crisis in the next four years. US Secretary of State Hillary Clinton during her October visit to Pakistan had offered $125 million for the purpose. Mr Holbrooke committed an additional of 16.5 specifically for expanding the power generation capacity of Terbela Dam.

Where the rest of the money out of $4 billion is to be spent in the next four years is still unclear. The subject may have been discussed in the ongoing talks between US and Pakistani officials concerned in Islamabad on implementing the ten priority areas of the two countries’ strategic cooperation as agreed under the US-Pakistan Strategic Dialogue in Washington in late March. Energy is one important area being discussed in the current parleys, which will conclude in early July. Ms Clinton and Foreign Minister Shah Mehmood Qureshi are scheduled to kick-start the various projects in the ten priority areas through a joint declaration in Islamabad in the coming days.

It is true that Pakistan’s strategic cooperation with the United States under the Obama Administration has increased. Under the Kerry-Lugar-Berman Act, the United States will provide an additional amount of $7.5 billion in civilian assistance to the country for the next five years. Besides the $4 billion that the Obama Administration has separately offered for the country’s energy sector during the next four years, there remains the possibility of US assistance in the nuclear energy sector as well, once the negative fallout from the 2003 A Q Khan nuclear smuggling scandal erodes and the country’s apt diplomacy at the Capitol Hill pays the due political dividends.

All said and done, Pakistan’s civilian government and security establishment certainly face a critical choice for overcoming the country’s severe energy crisis with external help. The choice is between America—the sole superpower pursuing a strategic partnership to the country and offering concrete help to overcome its urgent energy needs—and two important neighbouring countries, China and Iran, both of them also offering to help address the country’s energy crisis. China has always been a strategic ally; while Iran did serve the country’s security interests until the 1979 revolution. However, for several years after the withdrawal of the Soviet troops in Afghanistan, it had a competitive and even conflicting relationship with Pakistan in the region.