US embassy cable - 05ISLAMABAD17835

C O N F I D E N T I A L SECTION 01 OF 02 ISLAMABAD 017835 
 
SIPDIS 
 
STATE FOR SA AND EB 
 
E.O. 12958: DECL: 11/15/2015 
TAGS: ECIN, ECON, ENRG, EPET, ETTC, IN, IR, PK 
SUBJECT: IRAN PIPELINE DEMARCHE DELIVERED; GOP DISCUSSIONS 
WITH IRAN CONTINUE 
 
REF: A. ISLAMABAD 013943 
     B. STATE 202805 
 
Classified By: DOS Classification Guidelines 
 
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 
companies. 
 
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). 
CROCKER