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05ISLAMABAD17835 2005-12-01 12:57:00 CONFIDENTIAL Embassy Islamabad
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1. (C) SUMMARY: GOP officials took Ref B demarche points on
the Iran-Pakistan-India pipeline under consideration but had
no immediate reply. Petroleum Secretary Waqar met with
Iranian officials in Tehran November 16-17 in what was termed
a "confidence building" meeting that discussed routing
options, gas quality, and price for the proposed
Iran-Pakistan-India gas pipeline. The meeting follows the
Government of Iran's passing a terms sheet on the proposed
pipeline similar to one that it gave to the Government of
India on September 10. Waqar will visit India in
mid-December, and a tripartite meeting in Tehran is expected
to follow. The GOP also will attend a January meeting in
Ashgabat on the Turkmenistan-Afghanistan-Pakistan-India
(TAPI) pipeline, while the visits of two Chinese energy
delegations to Pakistan reflect China's growing interest in
the region. END SUMMARY.

Pakistan Petroleum Secretary's Nov 16-17 Visit to Tehran
============================================= ===========

2. (C) On November 14, Deputy Econ Counselor met Pakistan
Petroleum Additional Secretary Shawkat Durrani and delivered
Washington's Ref B points, which Durrani took under
consideration. Durrani reported that after a two-month delay
(Ref A), the Government of Iran in early November had passed
the Government of Pakistan (GOP) a terms sheet that he
believed was similar to one that Iran had given to the
Government of India on September 10. Durrani indicated that
Iran has offered to sell gas from its South Pars fields, but
his frustration with Iranian interlocutors was evident. He
described his Iranian counterparts as "very cunning and
mercantile....They place no value on time and are willing to
discuss all but the price."

3. (C) Duranni expressed concerns about Iran's insistence
that all aspects of any pipeline arrangement be made
"according to Iranian law." Specifically, he said that the
Iranians were insisting on a "buyback scheme," requiring that
any gas purchased under a pipeline deal be sold to the
National Iranian Gas Company and resold to the
government/consortium purchasing the gas. As he saw it, a
private company developing the Pars Gas Field would sell the
gas to the Iranian Government, which would then sell it to
new GOP-owned Interstate Gas Company. (Interstate is the new
GOP-owned entity that the GOP has tasked with working on the
Iran pipeline). Interstate would then sell the gas to the
Sui North and Sui South gas companies (both currently being
privatized). The Sui companies then would sell to the
end-user customers. Regulatory, commercial, legal, and
financial issues under Iran's framework were also concerns.
Durrani noted that India had hired a financial advisor for
the project and the GOP hoped to select its own advisor by
the mid-December.

4. (C) At a November 25 follow-up meeting with Durrani, he
confirmed that he had shared the Washington talking points
with Petroleum Secretary Waqar but that Waqar had made no
comment on the points, describing the Iran pipeline
discussions as "a long process." Durrani related that at the
Tehran meetings Waqar had discussed pipeline routing options,
gas quality-- and price. He informed that Waqar would travel
to Canada soon, and in mid-December he would visit India to
discuss the Iran pipeline. Durrani said that following
Waqar's meeting in India, a tripartite Iran-Pakistan-India
meeting would be held, most likely in Tehran.

Progress on TAPI and LNG

5. (C) Regarding the proposed
Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline,
Durrani indicated that Petroleum Secretary Waqar would attend
a January meeting in Ashgabat, and Petroleum Minister
Amanullah Khan Jadoon might also attend. He confirmed that
the Government of Turkmenistan had not confirmed quantity or
availability of gas from its Dovelatabad reserves, and he
speculated that GOT might finally disclose information on the
reserves at the meeting. For the GOP to proceed, however,
Durrani indicated that the GOP would need reassurances about
the security of a pipeline running through Afghanistan.

6. (C) On liquified natural gas (LNG), Durrani confirmed that
a financial advisor resident in Karachi had been selected and
the GOP was hoping to get an initial set of suggestions for
setting up a GOP regulatory policy framework shortly (though
he reiterated that LNG would not be sufficient to meet all of
Pakistan's growing energy needs). He stressed that the GOP
was continuing its efforts to completely privatize the
natural gas sector and due diligence continued apace in
preparation for privatization of the Sui North and South Gas

Growing Chinese Interest in Pakistan's Energy Sector
============================================= =======

7. (C) Asked about press reports that the GOP was considering
establishing a Pakistan-China Energy Forum, Durrani confirmed
that a six-member delegation of the China Development and
Reform Commission, led by Zhang Yuquing, had just visited
Pakistan to explore investment opportunities in the oil and
gas sector. Durrani described the commission as one of
China's highest decision-making bodies for energy policies,
and said that the visit was an outgrowth of Prime Minister
Aziz's 2004 visit to Beijing. He said that the delegation
had good discussions, including on the proposed Iran
pipeline, and the delegation then visited India. Durrani
said that the Chinese had expressed interest in becoming a
partner in building pipelines, refineries, and fuel
transport. Durrani added that the Chinese National Chemical
Engineering Group Corporation (CNEGC) was expected to visit
Pakistan November 29 to discuss working in the energy sector,
including developing the Thaar coal fields, constructing a
refinery/oil storage facility along Pakistan's coast, and
installing an LNG facility near Karachi (Pakistan is
simultaneously pursuing multiple pipeline/LNG options. While
LNG will help, LNG cannot fully meet Pakistan's growing
energy needs).

Minimal Earthquake Damage to Pakistan's Natural Gas Network
============================================= ==============

8. (C) Durrani reported that earthquake damage to Pakistan's
64,000 KM natural gas network was minimal because most
pipelines are built in the southern part of the country,
stopping short of Abbottabad, about an hour's drive south of
where the most severe damage occurred. Damage was mostly to
Liquid Propane Gas (LPG) shops and petrol pumps. As part of
the national relief effort, public and private gas companies
had donated approximately 430 million rupees (approximately
$7.3 million).