Iran to Fine Pakistan $18bn Over Delayed Pipeline Project

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Iran to Fine Pakistan $18bn Over Delayed Pipeline Project

Iran & Pakistan on the map (© Shutterstock/Claudio Divizia)
Iran & Pakistan on the map (© Shutterstock/Claudio Divizia)

Iran could hand Pakistan a whopping $18 billion penalty if Islamabad fails to complete a portion of the Iran-Pakistan (IP) gas pipeline project on its territory by February-March 2024.

Three weeks ago, Iran informed a visiting Pakistani official delegation that the US sanctions on Iran are illegal and Pakistan should construct the gas pipeline in its territory by February-March 2024 as stipulated in their revised agreement, a senior official at the Ministry of Energy told The News.

Iran has already finished a portion of the pipeline in its own territory—from the gas field to the Pakistan border, where it should connect to the Pakistan portion.

In September 2019, Pakistan’s Inter-State Gas Systems (ISGS) and the National Iranian Gas Company (NIGC) signed a revised agreement for the pipeline's construction, which stipulates that neither Iran nor Pakistan will take the other to court for delays or impose fines until 2024.

The pipeline will allow Pakistan to start receiving 750 million cubic feet of gas from Iran daily once the pipeline is completed and commissioned.

A spokesman for the petroleum division confirmed a Pakistani delegation recently visited Tehran but declined to comment on the outcome of the visit, The News said.

In February 2019, Tehran notified Islamabad of its intention to move forward with arbitration court proceedings for not constructing the pipeline in Pakistan's territory within the specified time frame under the IP gas line project and invoked the penalty clause of the Gas Sales Purchase Agreement (GSPA).

The GSPA, signed in 2009 for 25 years, had a three-year construction period for Pakistan to lay down a 781-kilometer pipeline from the Iranian border to Nawabshah.

The project was meant to be completed by December 2014, with operation starting on Jan. 1, 2015, and implemented under a segmented approach where Iran would build its portion and Pakistan its own.

Under the original agreement, Pakistan was to pay $1 million per day to Iran as of Jan. 1, 2015, as stipulated under the arbitration clause.

If Iran makes the threat real and moves forward with an arbitration court, Pakistan could face billions of dollars in penalties.

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