The Hindu Business Line : Iran pipeline project: Still many obstacles to be crossed

Chennai, July 2 News stories about IPI or Iran-Pakistan-India gas pipeline talks have been in full flow over the last few days, yet in the final analysis what we seem to be left with are only hitches and roadblocks, delays and rough patches.

A positive, however, is that the negotiations towards a final agreement on the IPI pipeline have certainly taken an important step forward, now that trilateral agreement has been reached about the cost of Iranian gas – as it moves into Pakistani territory – and bilateral agreement has been made about the transportation charges that Pakistan will charge India to deliver the gas to their border, says Mr Roger Howard, author of books on international relations.

His recent book, ‘Iran Oil’ ( www.vivagroupindia.com) postulated that “because of US trade embargoes on Iran, it is only the US’ rivals, such as China, who are able to fully exploit Iran’s natural resources, thus powering a new alliance of countries which will act as a counterweight to the US global power.”

Last obstacle

Speaking to Business Line about the IPI pipeline project, he cautions that there are still important obstacles to be crossed. “Since we live in an age of a tight energy market, the Iranians would not want to lock themselves in to a long-term pricing agreement that denies them the flexibility to revise their basic selling price – currently fixed at $4.93 per mBtu (million British thermal unit) – as it reaches the Pakistani border.”

While India and Pakistan want to fix the price for the next 25 years, Tehran is insisting on a contract clause that allows it to revise the selling price of its gas every three years. This seems to be the last remaining obstacle to the signing of an agreement, observes Mr Howard.

“It’s quite possible that the whole deal could flounder over this single issue – or at least that negotiations could drag on far longer than the negotiating parties would want.”

Over this particular issue there are no real international benchmarks, explains Mr Howard. “There’s nothing to stop every deal being quite different from the last, depending on all manner of different circumstances ranging from the political relationship between the contracting parties to the state of the market.”

Transit fees issue

The other sticking point, according to him, could be the issue of the ‘transit fees’ that the Pakistanis want to levy on the gas as it moves towards India. “For, while the transportation charges have been agreed upon, transit fees – the charge for providing the pipeline with security – have not been.”

In this particular area there are stronger international benchmarks and practices, says Mr Howard. However, even here, scope exists for uncertainty and disagreement “because the Pakistanis can legitimately point to the dire lawlessness in Baluchistan, or even in Sindh, and argue a case for higher transit fees.”

Even if the pipeline is built, and prices are fixed over the long term, the pipeline won’t necessarily bring the ordinary consumer any savings, he says. “This is because the prices that a consumer pays are determined not just by the cost of imported fuel but also by a whole myriad of other factors that interact in the marketplace.”

So if, for example, the Iranians increased the price of exported gas, then that increase would be passed on to Indian consumers who would of course have to pay more, argues Mr Howard. “But if we suppose that the price was fixed at a relatively low level over, say, 25 years, then the consumers could still pay more if, for example, there were fast-growing pressures within sectors of the Indian economy that cause an imbalance between supply and demand, or if other sources of fuel were disrupted.”

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