INDIA PAKISTAN SETTLE GAS PRICING

Islamabad has agreed to a pricing formula for import of natural gas from India, a silver lining in an otherwise fractious relationship between the nuclear-armed neighbours. The agreement follows discussions last month between GAIL India BSE 0.72 % and the Inter State Gas Systems (ISGS) of Pakistan.

In 2012, India had offered to export up to 5 million cubic meters of gas per day to Pakistan for an initial period of five years. The two nations, however, had failed to fix a price.

"Gas pricing was the biggest hurdle, but it is finally settled. This will provide gas at an economical price to our neighbour once the pipeline operationalises", said an Indian official.

India will import liquefied natural gas (LNG) and send it to energy deficient Pakistan via a pipeline between Jalandhar and Wagah. The pipeline, in which GAIL is investing about Rs 500 crore, is likely to be operational in a year. LNG will be imported from Qatar through terminals in Maharashtra or Gujarat and then moved through GAIL's existing pipeline network to Jalandhar. Under the agreement, LNG will be gassified by the Indian side as Pakistan does not have an LNG import facility.

In this year's budget, Finance Minister Arun Jaitley has granted basic customs duty exemption of 5 per cent on re-gasified LNG for supply to Pakistan. "Pakistan will be offered the LNG without charging the marketing premium", the official said. The development gives a fillip to bilateral energy talks after India last month called off foreign secretary-level talks with Pakistan in protest against Pakistan envoy's meeting with Kashmir separatists.

Later this month, Prime Minister Narendra Modi is likely to meet his Pakistani counterpart Nawaz Sharif on the sidelines of UN General Assembly in the US. India is also in talks to supply electricity to Pakistan through a grid corridor that can carry 500-1,000 mw electricity.

"A small part of Pakistani grid will connect with the Indian grid system. The mechanism is being worked out," the same official said. According to a Pakistani newspaper, the country's is able to meet only 65 percent of its energy needs through its own resources.

"The commercial decisions are preceding the dialogue process. Energy trade will be the game-changer and trade will automatically follow," said Nisha Taneja, professor at research organisation ICRIER.

"Instead of forcing trade, we are giving a lifeline to their economy. The government is not announcing it, but these signals are far stronger. It is a paradigm shift again."

The official quoted earlier said, "The India-Pakistan gas pipeline will give confidence to get into an agreement with Pakistan for the Turkmenistan-Afghanistan-Pakistan-India pipeline, which will bring Turkmen gas to India."

India is also considering a proposal to allow Indian and Pakistani businessmen to meet at the Wagah border so proposals can be discussed in neutral territory without travel visas.

"This will provide opportunity to businessmen to discuss proposals and exchange samples without having to go through the hassles of a visa," said another official. However, this will go through once official-level talks resume.