The Hindu Business Line : Punctured again

The latest price obstacle which Teheran has raised in the way of concluding an accord on the Iran-Pakistan-India gas pipeline project is just one more indication that doing business with the Iranians, particularly in the energy sector, is far more complicated than the situation on the ground would warrant. Everyone knows how the $22 billion LNG-supply deal struck in 2005 is yet to see the light of day because of a delay in its ratification by Teheran as also reservations o n the pricing issue. Further, even if the ratification had come through, its implementation would most probably have been delayed because of technological problems the Iranians are facing regarding the liquefaction of natural gas.

In the case of the gas pipeline project the immediate problem is one of price and the Iranians appear determined to extract, even if unrealistically, as much as possible from its two project partners. A year ago, Teheran had been insisting on a price as high as $7.2 per million British thermal units (mbtu) with a price escalation of three per cent every year. This price was, of course, turned down by New Delhi on the ground that it was 50 per cent more than the market-determined gas price prevailing in the country at that point of time. By February this year, Teheran had climbed down from its high horse and agreed to a price of $4.93 (at the Iran-Pakistan border) which, the Union Minister for Petroleum and Natural Gas, Mr Murli Deora, described as being “all right”. (Reliance Industries has pegged the wellhead price for its offshore Krishna-Godavari basin gas at between $4.4 and $4.6 mbtu.) In fact, so much was the hope generated by the price accord that the Minister felt a deal by June was possible. That hope has now been punctured by Teheran’s sudden demand that the price be reviewed every three years instead of five that was the earlier understanding and in line with international practice.

There is every possibility the Iranians will drop their three-year price revision demand, if only because the gas sales will greatly help their economy especially in view of the hostile trading conditions imposed by Washington and its allies. The deal would also represent a major diplomatic coup by Teheran in getting New Delhi to buy Iranian gas in the face of stiff opposition by the US. There is little doubt that, for both New Delhi and Pakistan, the supply of Iranian gas from (perhaps) 2011 through the $7.4 billion pipeline traversing 2,700 km will go a long way in bridging their internal gaps between demand and supply. But given the uncertainty that is hanging over the project, New Delhi should be complimented for having begun the process of spotting alternative sources of gas-supply such as Qatar and Australia.