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IDSA COMMENT

India-Pakistan Energy Trade: Need to think out of the box

May 27, 2013

There is reason to be optimistic about closer economic ties between India and Pakistan, in spite of the political tensions. A strong illustration of this point is the fact that in spite of Pakistan’s delay in granting the Most Favoured Nation (MFN) status to India, trade between both countries has continued to rise. The previous fiscal of 2012-13 has been witness to a 15% rise in India’s exports to Pakistan, while imports increased by 30%. The triumph of the Nawaz Sharif led Pakistan Muslim League (N) party in recent polls could give further momentum to economic ties between both the countries.

During the recent elections in Pakistan, the PML (N) in its manifesto re-iterated the importance of the 1999 Lahore Accord in the context of promoting cordial ties between both countries, but also spoke about establishing energy and trade linkages between Central Asia and Iran on one hand and China, Afghanistan and India on the other. Pakistan’s Prime Minister, Nawaz Sharif while commenting on his party’s vision stated that, “We will pick the threads from where we left. We want to move toward better relations with India, to resolve the remaining issues through peaceful means, including that of Kashmir.”

In India too Sharif’s political comeback, has resulted in a fresh sense of optimism within the industry. According to FICCI, General Secretary, Didar Singh, ‘The more economic stake we create in Pakistan, the better it is for normalising relations and bringing people together’.

Despite the enthusiasm all around, it would be a herculean task for the Pakistan government to deal with problems ranging from power shortages, economic crisis, Taliban insurgency and building relations with the US, Afghanistan and India.

In order to further consolidate on the progress made in the sphere of India-Pakistan trade, advances in energy cooperation can aid Pakistan in improving its power and economic crisis. To deal with power and fuel shortages, India and Pakistan is already into Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline foray. These countries along with Turkmenistan and Afghanistan are striving hard to find solutions to the challenges like security and financing of the pipeline. As regards the 2,735 km Iran-Pakistan gas pipeline, India has again shown its willingness to resume negotiations over the project despite pressure from the US. Interestingly, the export of US gas to India resulting from its shale gas boom despite any free trade agreement signed is actually to provide an extra alternative to energy sources and diverting India’s attention from IPI gas pipeline. Interestingly, in both gas pipelines – IPI and TAPI – involving India and Pakistan, Bangladesh has also shown its willingness to join the same.

India-Pakistan energy trade has already moved beyond just pipelines. Delegates from both the sides visited their counterparts to discuss export of petroleum products from India to Pakistan during May and July 2012. In spite of the meetings, no breakthrough has been achieved so far. Pakistan till now is relying petroleum trade from the Gulf countries, but the option of buying petroleum products from neighbouring India, certainly excites them largely due to the economic benefits arising from the same. The finer details have to be worked out. According to then Pakistan’s minister of Petroleum and Natural Resources, Asim Hussain, ‘Pakistan will import petroleum products like diesel and petrol from India... both through pipelines and sea routes if prices can be agreed upon’.

Recent petroleum developments between India and Pakistan suggest that Bharat Petroleum Corporation Limited (BPCL) has framed a policy and down-revised counter party registration criterion for certain companies and traders in Pakistan. Earlier due to lower overall trading volumes, BPCL was not able to register Pakistan based companies. In the past, Hindustan Petroleum Corporation Limited has shown interest in exporting their petroleum products from Bhatinda refinery to Pakistan. But to give final shape to their plans several hurdles pertaining to such exports remains which includes boarding the sulphur and pet coke in an open container type wagons, direct courier services between these countries, etc.

Shale gas could be yet another area in which India and Pakistan can join hands. The technically recoverable shale gas resources as identified by the US Energy Information Administration are 63 tcf and 51 tcf for India and Pakistan respectively. Though geologically highly complex shale basins, both these countries can jointly work together in extracting shale gas in their respective countries, while dealing with related inherent environmental and other challenges. Ultimately, shale gas can solve the problem of power and fuel woes of both the nations, while providing better energy options to crude oil and coal.

With a pragmatic individual at the helm in Pakistan, there is immense hope that both countries will focus on economics and mutual benefits, yet it is important to not be unduly optimistic, since in the past excessive optimism has been followed by disappointment.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.