Iran reverses stance on tri-nation gas pipeline

Published: Tuesday 31 October 2006

reversing from its earlier stance, Iran has excluded India (and in all probability Pakistan) from a say in the pricing formula for natural gas that would flow through a proposed tri-nation (Iran-Pakistan-India) pipeline. This incident is yet another setback to India's plans for energy security through natural gas. Iran is home to the second largest gas reserves in the world, and India can easily access its gas supplies.

Negotiations have not moved forward on the question of pricing, acceptable to both parties. India cannot afford to buy gas at a very high price, as among other factors, it supplies it to its power and fertiliser plants at a subsidised price. Pricing of the gas is crucial to the us $7 billion pipeline. While Iran's demand translates to us $7.2 per million British thermal units (MBtu) at the Iran-Pakistan border, India is not willing to pay more than us $4.25 per MBtu.

Appointing an independent consultant had become important after a disagreement between the sellers and buyers, with Iran insisting on a price linked to the crude oil and India and Pakistan seeking a price band with a ceiling. It was also necessary to sort out the difference of opinion on costs of transportation and processing of the gas. However, Iran has kept gail (India) Limited out of "coordination and finalisation" of a study by Gaffney, Cline and Associates (gca) on fixing the formula which will be the starting point for further negotiations on gas price.

"It may be noted that non-association of gail and Pakistan's Inter State Gas Systems Ltd with the study would be contrary to the position agreed in the 3rd tripartite meeting," M S Srinivasan, India's petroleum secretary, wrote to Iran's deputy minister for international affairs, M H Nejad Hossenian. Srinivasan has also declined to confirm any date for the next secretary-level meeting. "I shall be awaiting your response before advising about the date for the next tripartite meeting," he wrote on September 8, 2006. It is said that Iran has not yet replied to Srinivasan's letter, a copy of which was sent to Pakistan's petroleum secretary, Ahmad Waqar.

Hossenian invited India for the 4th tripartite meeting as the study by gca on gas price was about to be completed. At the last meeting, it was decided that a technical group of all three members would work with the neutral consultant and validate the study so that they all have a "realistic realisation" of the achievable gas price. It was agreed that while National Iranian Gas Export Company (nigec) would contract with the consultant, Pakistani and Indian officials (from gail) would be deputed to nigec's office for coordination and finalisation of the study.

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