The Sustainable Development Policy Institute in Islamabad, a prestigious Pakistani think tank, warned in a report issued Wednesday that importing the badly needed gas from the neighboring Islamic Republic would be an "economic death sentence" because the gas price cited in the contract with Tehran is too high.
The institute said the Iranian gas would be several times more expensive than the domestic gas supplies currently being used to fuel Pakistan's power generation system which can't meet mushrooming demand for electricity.
The 2009 contract as it stands "is a death sentence for Pakistan's economy," the report declared. "It is imperative for Pakistan to renegotiate the import price of the natural gas at the earliest time."
The report coincided with a meeting between Pakistani Prime Minister Nazar Sharif in Washington with U.S. President Barack Obama, whose administration has been dead set against the project because it would puncture U.S. efforts to force Iran to abandon its contentious nuclear program.
Washington has threatened to impose economic sanctions on Pakistan if it goes through with the deal.
The latest warning came from Under Secretary for Political Affairs Wendy Sherman, who told a congressional hearing Oct. 4 Pakistan "certainly understands where we are and what our sanctions require should it proceed" with the pipeline.
Sharif has repeatedly stressed that, despite U.S. objections, Islamabad plans to go ahead with the final stages of the 1,200-mile pipeline from Iran's giant South Pars gas field in the Persian Gulf.
But the geopolitical landscape has shifted considerably in the last few weeks, with the United States seeking a rapprochement with Pakistan, where Sharif came to power in June in the country's first democratic transition since it was founded in 1948.
Sharif has moved to reassert civilian authority over the long-powerful military, which was increasingly at odds with Washington over pressure to step up the campaign against Islamist insurgents aided by al-Qaida.
But he also has to restore a collapsing economy. Boosting power generation is a major priority.
Sharif insists the pipeline will not violate the international sanctions currently in effect against Iran, and says under the contract signed by the previous administration in Islamabad Pakistan is contractually obligated to go ahead with construction of the pipeline, or face Iranian penalties of $3 million a day.
"Pakistan needs gas very badly," Sharif said in September while attending the U.N. General Assembly in New York. "We have to run our power plants. We need gas for them. There is an acute shortage of gas in Pakistan, so we have to import gas from somewhere."
The current moves by the Obama administration to secure a reconciliation with Iran -- to end a rift that began with the Islamic Revolution that toppled longtime U.S. ally Shah Mohammad Reza Pahlavi in 1979 -- could indicate that at some point Washington might soften its uncompromising policy toward Iran and let the pipeline go ahead.
Sharif tactfully sidestepped a possible diplomatic confrontation with Washington when he unveiled his government's first budget in June, and omitted allocating a budget for the pipeline project.
But if he's determined to resolve Pakistan's acute energy crisis, but can't afford to suffer U.S. sanctions, he's going to have to find another way.
And that leads to another possible twist in the convoluted saga of the pipeline first mooted back in 1994.
Sharif has close links with Saudi Arabia, which reportedly financed much of Pakistan's nuclear arms program over the years.
He spent six years in exile in the kingdom following his ouster in a military coup in October 1999, thanks to the House of Saud negotiating his release from prison in Pakistan.
Pakistani news outlets have reported Sharif's government began holding talks with Riyadh in May regarding a supply of crude oil and refined products on a deferred-payment basis that would help ease the energy crisis, as well as pressure on Islamabad's depleted treasury.
Meantime, Islamabad, underlining its parlous finances, has asked Iran for $2 billion to finance construction of its 485-mile section of the pipeline that's intended to carry 750 million cubic feet per day.
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