Pakistan hires top law firm to avoid $1.8 billion penalty in Iran gas pipeline project

Pakistan hires top law firm to avoid $1.8 billion penalty in Iran gas pipeline project
In this file photo, Iranians work on a section of a pipeline after the project was launched during a ceremony with presidents of Iran and Pakistan on March 11, 2013 in the Iranian border city of Chah Bahar. (AFP)
Updated 01 August 2019

Pakistan hires top law firm to avoid $1.8 billion penalty in Iran gas pipeline project

Pakistan hires top law firm to avoid $1.8 billion penalty in Iran gas pipeline project
  • French law firm Gide Loyrette Nouel will provide legal assistance to Islamabad
  • Pakistan is bound to pay a daily penalty of $1 million to Iran starting from January 1, 2015 under a penalty clause of the bilateral agreement

ISLAMABAD: Pakistan has hired a French law firm to explore legal options to deal with Iranian threat of moving international court against Islamabad for its failure to execute the Iran-Pakistan gas pipeline project and find out a way if the project can be completed without attracting the US sanctions, a top official at Ministry of Energy said on Tuesday.
The US has steadfastly opposed Pakistan's involvement in the $7 billion project, saying it violates the sanctions imposed on Iran. 
Under an agreement signed between the two countries in 2009, the project was to be completed by December 2014 and would deliver 21.5 million cubic meters (760,000 million cubic feet) of gas per day to Pakistan. It was to be constructed using a segmented approach – Iran had to lay down the pipeline on its side and Pakistan was supposed to build the pipeline on its soil.
Tehran formally issued a notice to Islamabad in February this year, saying it was moving an arbitration court against Pakistan for failing to lay down the pipeline in Pakistani territory in the time-frame stipulated in the bilateral agreement. Since then, Pakistan has been exploring different legal and diplomatic options to avoid litigation.
“We are analyzing the overall international situation regarding Iran and studying Tehran’s position over the gas pipeline project through an international law firm,” Sher Afgan Khan, additional secretary at Ministry of Energy, told Arab News.
Pakistan has hired the French law firm, Gide Loyrette Nouel, to study the deal and prepare a legal response to Iran’s position that the US sanctions do not impact its gas import trade. In May this year, Pakistan had informed Iran in writing that it cannot execute the project as long as Tehran is under a US sanctions regime.
“We are trying our best not to violate [the US] sanctions ….. we are already on the FATF’s [Financial Action Task Force] grey-list,” Khan said referring to Pakistan’s formal placement on the FATF’s grey-list in June last year.
The Trump administration has warned countries around the world to stop buying Iranian oil or face sanctions of their own. Washington’s European allies have tried and failed to come up with ways to blunt the economic impact of the US move. The US sanctions against Iran are a major hindrance for most gas pipeline projects in the region.
But Pakistan is caught in a catch-22 situation over the deal. Under a penalty clause, Pakistan is bound to pay $1 million per day to Iran from January 1, 2015 for failing to build its part of the pipeline. If Iran takes the case to an arbitration court, Pakistan will likely have to pay around $1.8 billion in penalty.
Additional secretary Khan said, “Negotiations are in progress to settle the issue amicably” with Iran, adding that "Iran understands our position." 
About the deadline of completion of the legal consultation process with the French law firm, he said: “It is not very extensive and expected to be completed soon.”