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$200m/month fine: Iran backtracks from demand after new gas agreement with Pakistan

$200m/month fine: Iran backtracks from demand after new gas agreement with Pakistan

LAHORE: Iran has backtracked from its demand of $200m a month from January 1 to compensate for Islamabad’s failure to begin receiving gas from Iran’s South Pars gas field as both the countries have reached an agreement, according to Federal Minister for Petroleum Shahid Khaqan Abbassi, Financial Times reported on its website.

Pakistan has in the past said the Iranian gas is the cheapest option available as its own reserves in the country’s south and southwest dry up. However, officials have complained of continuing US pressure on Islamabad to keep the arrangement with Iran on hold until US-led international sanctions on Tehran are lifted.

The “new understanding” between the countries revealed by Shahid Khaqan Abbassi removes for now a “take or pay” obligation on Pakistan to compensate Iran whether or not it receives anything under a contract linked to the pipeline. “We have a new understanding with Iran,” Abbassi told the Financial Times. “There will be no penalty applicable from January 1.”

He said that some officials from Iran’s NIOC (National Iranian Oil Company) would visit Islamabad in few days to meet ISGS people to discuss the way to implement the project and talk about the remaining issues. The exact date for NIOC-ISGS meeting to be announced soon, he added.

Pakistan produces about 4bn cubic feet of gas per day but officials say the country needs at least 8bn cu ft. The country’s worsening energy supply shortfall has been highlighted in recent days with anxious consumers complaining of gas shortages while the winter chill sets in. The problem has forced Pakistan to halt the sale of compressed natural gas at petrol stations so the gas can instead be diverted for household use.

A foreign ministry official speaking on condition of anonymity said the agreement revealed by Abbassi was important to keep relations intact between Islamabad and Tehran because the neighbours needed to co-operate in fighting militants. Since last week’s Taliban attack on a school in the northern city of Peshawar, officials have spoken of renewed efforts to improve security ties with Iran.

Energy experts said gas from Iran would form a substantial part Pakistan’s energy mix. Sakib Sherani, a former adviser to the finance ministry in Islamabad, said gas from Iran was “a very significant source of future gas supplies to Pakistan. We can’t give up this project.” Abbassi said a planned terminal for converting imported liquefied natural gas to gas near the southern port city of Karachi would be “up and running” by March 2015.