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 SIPDIS C O R R E C T E D C O P Y (ADDED CLASSIFIED BY AND REASON) SIPDIS 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 ISLAMABAD 00001699 001.2 OF 002 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. -------------- MORE TALK BUT NOTHING SPECIFIC AGREED -------------- ¶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 SIPDIS 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.) -------------- Comment -------------- ¶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 ISLAMABAD 00001699 002 OF 002 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. -------------- Action request -------------- ¶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