The Hindu Business Line : LNG deal with Iran runs into rough patch

Contract deadlock
Deal needs ratification from higher authorities in Iran: Iran Deputy Oil Minister
Price mentioned in the original contract should prevail: India
Iran, India seeking legal opinions

Mr Mohammad Hadi Nejad Hosseinian (third from left), Deputy Oil Minister of Iran, and members of his delegation calling on Mr Murli Deora, Minister for Petroleum and Natural Gas, in the Capital on Tuesday. - Kamal Narang

New Delhi , May 2

India's $22-billion deal with Iran for supply of liquefied natural gas (LNG) has hit an impasse with Iran insisting on some key changes in the contract and India unwilling to renegotiate the deal. Iran has also made it clear that the deal would come through only after ratification by the Supreme Economic Council of Iran.

The visiting Iranian Deputy Oil Minister, Mr Mohammad Hadi Nejad Hosseinian, on Tuesday said, "The deal needs ratification from higher authorities in Iran and the contract is not binding as India believes it to be."

The Minister said the difference was not political in nature but there was a difference in the interpretation of the contract's effectiveness.

After meeting the Minister for Petroleum and Natural Gas, Mr Murli Deora, the Iranian Deputy Oil Minister told newspersons that his country wanted changes in the LNG deal and if India accepted them, they would be executed. Indications are that Iran wants a higher price for the five million tonnes per annum of LNG to be sold to India.

When asked to comment on the issue, Mr Deora said price was a key issue of difference in the LNG deal. Mr Deora also said the two deals with Iran — the LNG deal and the proposed tri-nation gas pipeline project — were not political issues and India had conveyed that the price mentioned in the original contract should prevail. Both sides are seeking legal opinions.

On whether New Delhi was open to renegotiation of the deal, Indian officials responded in the negative. The legal opinion obtained by India stated that the contract was binding on both parties.

Tri-nation pipeline project

Mr Hosseinian also said that India was very much a part of the $7.4-billion Iran-Pakistan-India gas pipeline project and that the three countries may decide to build a parallel pipeline as demand grows. Iran has set July as the deadline to sign a deal for the pipeline project, failing which it would pursue bilateral exports to Pakistan, he added.

Elaborating on the project, Mr Hosseinian said the pipeline would have a capacity of 110 million standard cubic metres per day (MMSCMD) of which 30-35 MMSCMD would be used for meeting the demand in Eastern Iran. Pakistan had indicated a requirement of 30-60 MMSCMD, while India needed 90 MMSCMD.

"The demand will ramp up over five years, and initially the capacities can be divided on pro-rata basis," he said.

Mr Hosseinian said Pakistan had now raised its gas demand from the proposed pipeline to 50 MMSCMD from 30-60 MMSCMD. "The maximum capacity that a pipeline can have is 110 MMSCMD and if one pipeline cannot meet the demand of all the three countries, we will go in for a second pipeline. But there is no proposal to have a separate pipeline for each country," he said.

On pricing of the gas , Mr Hosseinian said: "We have proposed a formula for fixing the price but it has not been agreed to by Pakistan or India during our talks in Tehran in February. During our talks in Islamabad, we asked Pakistan to submit its pricing formula within a week and now we have asked India to submit its proposal."

Iran is the fourth largest oil producer and second largest gas producer after Russia.

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