The Pakistan government has hired three top legal firms to defend itself in an international arbitration case filed by Iran over delays in the Iran-Pakistan gas pipeline project. The total reparations sought by Iran from Pakistan for failing to keep its commitments amount to $18 billion. Incidentally, even if a part of this amount is awarded by the arbitrators to Iran, Pakistan’s economy will nosedive and sink.
The Iran-Pakistan (IP) gas pipeline project, stalled since 2014 due to US sanctions proposals, has faced delays extending over a decade.
In a precarious position already, Pakistan economy is being kept afloat artificially by huge loans taken from the International Monetary Fund (IMF). Presently, the Pakistan government led by Prime Minister Shehbaz Sharif had entered into a deal with the international lender for $7 billion to avoid sovereign default.
Iran filed the case in Paris, stating before the arbitrators that Pakistan failed to complete its part of the pipeline and to receive the expected 750 MMCFD gas under the bilateral agreement.
The GSPA (Gas Sales Purchase Agreement) was signed in 2009 under the French law. The Arbitration Court is the forum to decide disputes that arise between two countries. The French Arbitration Court does not recognise US sanctions.
The Inter-State Gas Systems (ISGS) of Pakistan and National Iranian Gas Company (NIGC) inked the revised contract in September 2019. Under the contract, Iran would not approach any international court if there was a delay in construction of pipeline. Pakistan, however, was asked to erect its pipeline by 2024 after which it would have an intake of 750 million cubic feet of gas from Iran daily.
Under the revised contract, Pakistan was bound to erect the portion of pipeline in its territory till February-March 2024. Iran helped Pakistan after the expiry of the deadline and extended it by 180 days to September 2024. The authorities, however, again failed to lay down the pipeline. Iran then served its final notice as it would have lost the opportunity to file any case against Pakistan.
To support its defence, Pakistan has appointed three prominent international law firms – White & Case, Three Crowns, and Wilkie Farr & Gallagher, along with a leading Australia-based barrister with extensive experience in oil and gas infrastructure litigation. Most of Pakistan’s newspapers, TV channels and portals have carried the report regarding Iran’s case against Pakistan during the past few days.
According to officials, the legal team has been briefed on the background of the pipeline project, known as the Iran-Pakistan (IP) pipeline, and the obstacles that have prevented its completion. Details of the legal team representing Pakistan were submitted to the arbitration court’s secretariat in Paris on 18 October 2024.
Per the arbitration process, Pakistan will now select an arbitrator in coordination with its legal team, while Iran will also nominate one. Both parties are then expected to jointly appoint a third arbitrator, completing the tribunal and allowing proceedings to commence. A decision from the arbitration panel is expected within a year once the proceedings start.
Iran had issued a final notice regarding this arbitration in August 2024, clearly outlining its plans to invoke arbitration in September if Pakistan failed to complete the pipeline project. The IP gas pipeline project, stalled since 2014 due to US sanctions proposals, has faced delays extending over a decade.
The US wants to maintain pressure on Iran through sanctions and this has affected the proposed pipeline project. The IP gas pipeline project, which aims to extend an 80-kilometre pipeline from Gwadar in Pakistan to Iran, has faced significant delays.
The project was conceptualized in 1989 by Rajendra K. Pachauri in partnership with Ali Shams Ardekani and Sarwar Shar, former Deputy Foreign Minister of Iran. Pachauri proposed the plan to both Iranian and Indian governments. The government of Iran responded positively to the proposal. At the 2010 annual conference of the International Association of Energy Economics, Ardekani backed Pachauri’s proposal.
Initially, India was also supposed to participate in this pipeline project but in 2009, India withdrew from the project over pricing and security issues. However, in March 2010 India called on Pakistan and Iran for trilateral talks to be held in May 2010 in Tehran. On 4 September 2012, the project was announced to commence before October 2012 and be completed by December 2014.
