NO ACTION BUT MORE RHETORIC ON PAKISTAN IRAN PIPELINE DEAL

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 001699

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C O R R E C T E D C O P Y (ADDED CLASSIFIED BY AND REASON)

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E.O. 12958: DECL: 01/09/2013
TAGS: ENRG ECON EFIN EINV PREL PGOV PK
SUBJECT: NO ACTION BUT MORE RHETORIC ON PAKISTAN IRAN PIPELINE DEAL

REFS: A) 08 ISLAMABD 01684 B) 08 ISLAMABAD 00417 C) 07 ISLAMABAD
04578, D) 07 ISLAMABAD 4274, E) 07 ISLAMABAD 2593, F) 07 ISLAMABAD
1059, G) 07 ISLAMABAD 543

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Classified by: Ambassador Anne Patterson, Reasons 1.4 (b),(d)


1. (U) This is an action request. Please see para eleven.


2. (C) SUMMARY. Following a brief state visit from Iranian President
Mahmound Ahmadinejad on April 28, local media reports that the path
has been cleared for Pakistan and Iran to sign the much touted
natural gas pipeline deal. While high on fanfare, the visit yielded
no actual results on key outstanding issues associated with the long
delayed pipeline such as the essential elements of a transit fee,
tariff structure, or timeframe for construction. Joint Secretary for
Development at the Ministry of Petroleum and Natural Resources,
Tahmoor Azmat Usman, calls the latest Musharraf-Ahmadinejad push on
the pipeline a "non-binding MOU." Additional electricity imports
were also reportedly discussed. END SUMMARY.

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MORE TALK BUT NOTHING SPECIFIC AGREED
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3. (C) Local media hailed the official state visit of Iranian
President Mahmound Ahmadinejad on April 28 as a step forward in
clearing the path for Pakistan and Iran to sign the much touted
natural gas pipeline deal. While high on fanfare, the visit yielded
no actual results on key outstanding issues associated with the long
delayed pipeline. Newly appointed Tahmoor Azmat Usman, Joint
Secretary for Development at the Ministry of Petroleum and Natural

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Resources, confirmed to EconOff that no agreement has been reached on
the essential elements of the deal, such as a transit fee, tariff
structure, or timeframe for construction.


4. (C) Usman confirmed that while Pakistan, Iran and India have
agreed on the pricing mechanism "in principal," no details have yet
to be agreed and that "future discussions will occur at the working
level." Usman also confirmed that India and Pakistan have agreed "in
principal on a transit fee but no actual numbers have been agreed to
yet." Calling the latest "agreement" between Presidents Musharraf
and Ahmadinejad "a non-binding MOU," Usman further noted that only a
pre-feasibility study has been completed to date. A feasibility
study will be required and will take at least one year to prepare.
According to Usman, the pipeline will take four years to complete
once construction begins.


5. (C) The GOP also signed an agreement to move forward on a pipeline
with Turkmenistan, Afghanistan and India (TAPI) on April 24. (reftel
A). Usman commented that "if the U.S. is so against the IPI then
they should at least assist with the TAPI pipeline project." Upon
noting that the U.S. has engaged with the Turkmens on the pipeline
issue and the GOP's perceived "excessive Russian influence" in
response to previous GOP requests (reftel D),Usman told Deputy
EconCouns "ok, that must be why the Turks are now saying it's their
gas and doesn't belong to anyone else."


6. (SBU) Local media also reports that the Iranian and Pakistani
Foreign Ministers will schedule a follow up meeting to set a future
date for the signing of "the first of three necessary agreements on
the friendship pipeline."


7. (SBU) Additional electricity imports were also reportedly
discussed. Media notes that Iran also agreed to provide 1100 MW of
electricity to Pakistan to help overcome recent power shortages "to
those areas neighboring Iran." Since December 2002 Pakistan has been
importing 35 megawatts (MW) of electricity from Iran for the coastal
areas of Balochistan province. (Comment: As reported reftel C, on
February 7, 2007, Iranian Power Generation, Transmission and
Distribution Company (Tavanir) of Iran and the Water and Power
Development Authority of Pakistan signed a power purchase agreement
for 100 MW of electricity from Iran to supply the port of Gwadar. End
Comment.)

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Comment
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8. (C) Pakistan's decision to go ahead with the Iranian pipeline is
not without ramifications, which the GOP is well aware. This issue
has been raised many times by U.S. officials with their Pakistani
counterparts (reftels). Pakistan has few good options for finding
additional energy supplies and faces an increasingly desperate need
to do so. Blackouts continue to be a daily occurrence across the

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country and further exacerbate economic woes as industry is forced to
shutdown. While Pakistan does have a good domestic natural gas
exploration-discovery ratio, supplies are dwindling and it would be
difficult to find enough domestic reserves to replicate the 1.05
billion cubic feet that the Iranians are purportedly offering.


9. (C) Comment continued. Post continues to work with various
Ministries within the GOP to develop ideas on what the U.S. can do in
the short term to mitigate Pakistan's energy woes. Development of
the Thar coal fields in Sindh is perhaps the most promising. Further
U.S. support and engagement on the TAPI and CASA 1000 projects will
also be well received by the GOP.


10. (C) Septel reporting will detail CoDel Smith (D-WA) meetings in
Islamabad. Post notes that Prime Minister Gillani told CoDel Smith
that "President Ahmadinejad's trip was a photo-op." End comment.

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Action request
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11. (C) Action request: Post recognizes the ramifications for
U.S.-Pakistan policy of Pakistan's decision to move forward on the
pipeline deal. We would appreciate an analysis of the sanctions
implications for both the GOP and any private Pakistani or other
entities that might eventually participate in this project. We also
recommend that Washington prepare press guidance and brief the Hill
on Pakistan's motivations for concluding this agreement with Iran.
End action request.

PATTERSON