Breakthrough in Iran pipeline contract

India, Pakistan agree on gas transport price.

A major breakthrough in the long-delayed $7 billion Iran-Pakistan-India (IPI) pipeline was reached today with Pakistan and India coming to an agreement on the vexed issue of gas transportation charges.

With this, the final agreement is expected in a few weeks, bringing to a close more than a decade of negotiations.

"A final agreement is expected to be signed during a ministerial-level meeting in the second half of July," an official in the petroleum ministry said.

The agreement follows parleys between Petroleum Secretary MS Srinivasan and his Pakistani counterpart Ahmad Waqar, which continued till late Wednesday. On Thursday, they were joined by the Iran energy officials.

Under the agreement, Pakistan will be paid a transportation tariff of $0.70-0.75 per million British thermal unit (mBtu) of gas, which is higher than the $0.55 per mBtu ($20 million annually) that New Delhi had been willing to pay earlier.

"The transportation charges and transit fees demanded by Pakistan is based on international standards and there is not much scope to change that," Petroleum Minister Murli Deora recently told Business Standard.

The gas will cost $4.93 per mBtu at the Iran-Pakistan border. The cost in gas-starved India will be about $7 per mBtu, after paying Pakistan a transportation charge and transit fee.

There are, however, a few issues to be resolved before the construction of the 2,100-km pipeline begins. While the initial gas price has been agreed upon by the three contracting parties, there is no agreement on how frequently this price is to be revised.

"Iran wants the pricing formula to be revised every three years based on global fuel prices," said an official, requesting anonymity.

Both India and Pakistan, however, want the price to be constant for the 25-year duration of the gas supply contract.

The issue of the transit fee ""the fee for providing security for the pipeline "" is also to be sorted out.

"The transit fee demanded by Pakistan will be discussed at the ministerial meeting next month since the issue is more political than economic," the oil ministry official said.

The transit fee demanded by Islamabad is $0.493 per mBtu while India has offered $0.20 per mBtu.

"A few creases have to be erased, and we can get down to drawing out a route map for the pipeline," the official said.

The pipeline, which is critical for meeting India's energy needs, will initially carry around 60 million cubic metres of gas a day, split equally between India and Pakistan. Gas supplies currently meet half the country's demands

Industry analysts say although the $7 per mBtu price for the Iran gas is high compared with the current domestic price of around $4.5 per mBtu "" the market price set by Reliance Industries for its gas from the Krishna Godavari basin on the Andhra coast "" there will still be takers.

"India will always be a gas-deficient country despite the major discoveries on the east coast. Power plants, for example, that currently use expensive naphtha or LNG as fuel, will not mind paying even $8 per mBtu for gas," an analyst said.

The pipeline is being built over the objections of the US, which is reluctant to encourage business with Iran given its aggressive nuclear policy.