As Pakistan buys Iranian gas India asks if it should, too

The much-delayed India-Pakistan-Iran (IPI) gas pipeline is back in the news, but now with just one "I" - India is no longer part of the project.

Iran and Pakistan marked the start of Pakistani construction this month, when the presidents of the two countries came together for a ground-breaking ceremony.

The pipeline is to be completed in time to start delivery of 21.5 million cubic metres of gas per day to Pakistan by December 2014.

There is much political symbolism in this as both Islamabad and Tehran are trying to snub the US, which has been against this pipeline and has been trying to isolate Iran for its nuclear programme.

During the ceremony the Iranian president, Mahmoud Ahmadinejad, accused "foreign elements" of trying to undermine Iran's relations with Pakistan and seeking to thwart the Islamic Republic's progress by using its nuclear programme as a pretext. "I want to tell those individuals that the gas pipeline has no connection whatsoever with the nuclear case," Mr Ahmadinejad said.

Rapidly rising energy demand in India and Pakistan has been the impetus behind the proposed gas pipeline from Iran's fields through Pakistan to India. It is expected that this project will help cement ties between Iran and Pakistan, and that Pakistan's annual royalties will be up to $600 million (Dh2.2bn).

The proposal, however, was stuck for a long time because of differences between Pakistan and Iran on pricing. Both India and Pakistan wanted Tehran to offer a price set on the basis of global practices for long-term contracts; they both rejected Iran's formula, which was to link the price to the price of Brent crude oil, with a fixed escalating cost component. Also, India was wary of the sums Pakistan was demanding for security and transit to India.

Despite US opposition to the project, both India and Pakistan had indicated that it remained a high foreign policy priority.

In the end Pakistan decided, in 2009, to finalise the deal, connecting Iran's South Pars gasfield and Pakistan's Balochistan and Sindh provinces.

However, the deal remains a controversial one in Pakistan, because of the high price that Iran is charging.

India had quit the project in 2009 though officially New Delhi continues to claim that it has kept its options open to join the project at a later date. Indeed, even China has shown interest in joining the project.

For India, the main issue is Iran's reliability as an energy provider. There is little evidence so far that Iran would be sufficiently dependable to contribute to India's search for energy security. A number of important bilateral projects involving Indian businesses and the Indian government have been rejected by Iran or have yet to be finalised, due to last-minute changes in the terms and conditions demanded by Tehran.

To date, Iran accounts for only about eight per cent of Indian oil imports. Moreover, both of the major Iran-India energy deals recently signed with great fanfare are now in limbo.

India's 25-year, $22 billion agreement with Iran for the export of liquefied natural gas (LNG), signed as far back as 2005, has still not produced anything, as it requires India to build an LNG plant in Iran. Such a plant would need American components, which might violate the US Iran-Libya Sanctions Act.

The other project - construction of a separate, 2,735-km, $7 billion pipeline to carry natural gas from Iran to India via Pakistan - is also stuck.

The current Indian government initially viewed that pipeline project as a confidence-building measure between India and Pakistan but in 2005, when pressure started mounting, Manmohan Singh, the Indian prime minister, went so far as to say he did not know if any international consortium of bankers would underwrite the project, given uncertainties about Iran.

The Indian strategic community has never been in favour of the pipeline proposal anyway, seeing it as giving Pakistan considerably too much leverage over India's energy security.

Both these projects have also made the unreliability of Iran as a trade partner clear to India. The national oil companies of Iran and India disagree about the legal interpretation of the contract, that was signed in 2005 before Mr Ahmadinejad was elected president of Iran.

The deal was based on a relatively low market price for crude oil. Naturally, then, India considers the deal final and binding, while Iran has argued that the price can be changed because the agreement has not been finally ratified.

In light of Iran's growing global isolation, sections of the Indian government have suggested that India's participation in the gas pipeline deal might not be strategically advantageous to India, given the very low quantity of gas involved.

Moreover, it has also been apparent that the Iranian gas is not the lowest-priced option for India. New Delhi has made it clear that although it remains interested in the pipeline project, it would pay for the gas only after it is received at the Pakistan-India border, it would not pay a penalty in case of a delay, and it is opposed to Iran's demand to revise the deal's gas prices every three years.

India's interests in its whole broad relationship with Iran have never been strictly commercial. After Pakistan and Iran signed their 2009 pipeline deal, India indicated that it was willing to resume negotiations regarding independently importing natural gas from Iran via an undersea pipeline, allowing India to bypass Pakistan.

As Iran and Pakistan move ahead with the project now, India is likely to wait and watch to see if the rhetoric of the "peace pipeline" actually matches the ground reality of energy security in its neighbourhood.

Harsh V Pant is a reader in international studies at King's College, London

Ten tax points to be aware of in 2026

1. Domestic VAT refund amendments: request your refund within five years

If a business does not apply for the refund on time, they lose their credit.

2. E-invoicing in the UAE

Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.

3. More tax audits

Tax authorities are increasingly using data already available across multiple filings to identify audit risks.

4. More beneficial VAT and excise tax penalty regime

Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.

5. Greater emphasis on statutory audit

There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.

6. Further transfer pricing enforcement

Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.

7. Limited time periods for audits

Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.

8. Pillar 2 implementation

Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.

9. Reduced compliance obligations for imported goods and services

Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.

10. Substance and CbC reporting focus

Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.

Contributed by Thomas Vanhee and Hend Rashwan, Aurifer

The National Archives, Abu Dhabi

Founded over 50 years ago, the National Archives collects valuable historical material relating to the UAE, and is the oldest and richest archive relating to the Arabian Gulf.

Much of the material can be viewed on line at the Arabian Gulf Digital Archive - https://www.agda.ae/en

THE BIO

Bio Box

Role Model: Sheikh Zayed, God bless his soul

Favorite book: Zayed Biography of the leader

Favorite quote: To be or not to be, that is the question, from William Shakespeare's Hamlet

Favorite food: seafood

Favorite place to travel: Lebanon

Favorite movie: Braveheart

Gifts exchanged

King Charles - replica of President Eisenhower Sword
Queen Camilla - Tiffany & Co vintage 18-carat gold, diamond and ruby flower brooch
Donald Trump - hand-bound leather book with Declaration of Independence
Melania Trump - personalised Anya Hindmarch handbag

Gender pay parity on track in the UAE

The UAE has a good record on gender pay parity, according to Mercer's Total Remuneration Study.

"In some of the lower levels of jobs women tend to be paid more than men, primarily because men are employed in blue collar jobs and women tend to be employed in white collar jobs which pay better," said Ted Raffoul, career products leader, Mena at Mercer. "I am yet to see a company in the UAE – particularly when you are looking at a blue chip multinationals or some of the bigger local companies – that actively discriminates when it comes to gender on pay."

Mr Raffoul said most gender issues are actually due to the cultural class, as the population is dominated by Asian and Arab cultures where men are generally expected to work and earn whereas women are meant to start a family.

"For that reason, we see a different gender gap. There are less women in senior roles because women tend to focus less on this but that’s not due to any companies having a policy penalising women for any reasons – it’s a cultural thing," he said.

As a result, Mr Raffoul said many companies in the UAE are coming up with benefit package programmes to help working mothers and the career development of women in general.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”