IPI Gas Deal: Iran Sticks to its Stand

Iran’s new Oil Minister Gholamhossein Nozari blamed misunderstanding for the fall of the $22 billion deal to export five million tons of liquefied natural gas (LNG) to India. “I think there was a misunderstanding of the procedure followed for approval of such deals,” he said.

After National Iranian Gas Export Company (NIGEC) signed a Sale-Purchase Agreement (SPA) with a consortium of GAIL India, IOC and BPCL for export of 5 million tons a year of LNG on June 13, 2005 in Tehran, the contract was to be vetted by NIGEC’s parent company, National Iranian Oil Company (NIOC), he said.

Though the Iranian Minister did not say that the deal was dead, one of his aides said that Tehran was considering the deal closed. “If you (India) want LNG, it has to be on a new contract on new terms (price),” the aide said.

The June 2005 LNG deal was signed by the previous government and after Ahmadinejad took over Tehran sought review of price and delayed NIOC board approval. India, on the other hand, sought legal opinion on enforceability of the SPA.

Iran in June 2005 agreed to sell LNG to India at $3.215 per million British thermal unit (mBtu) but subsequently demanded at least $4.775 per mBtu in view of a sharp rise in oil prices.

New Delhi wants Tehran to act upon the contract to supply 5 million tons LNG at the June 2005 prices and has stated it is willing to pay the higher price for an additional 2.5 million tons of the fuel.

“We have told the Indian side that if they have a serious desire for this contract, they have to suggest a proper price in negotiations because their current price is very low,” the Iranian minister’s aide said.

As per the formula agreed in 2005, Iran was to charge India 6.5 per cent of the Brent crude oil price at the time of loading of each consignment plus a fixed price of $1.2 per mBtu.

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