Iran draft wording puts pipeline deal in doubt

The fine print of the $7-billion Iran-Pakistan-India (IPI) pipeline draft agreement given by Iran has dampened the initial euphoria of a breakthrough.

Petroleum ministry officials say the agreement, as proposed by Iran, is totally one-sided.

"The text of the draft agreement that Iran has submitted is worded in a way that gives it a window to seek a price revision at any time during the contract period. This is being fiercely opposed by us and Pakistan," a senior official in the petroleum ministry said.

"We are increasingly seeing the move as a sign of non-commitment," another oil ministry official said. Iran could, in fact, turn off the pipe any time, locking billions of dollars of investment, the official added.

Petroleum ministry officials are now saying that the trilateral talks held in New Delhi late last week were a failure.

"While the bilateral meeting with Pakistan was a success as we agreed on the transportation tariff, the trilateral meeting was a failure," another petroleum ministry official said.

Before the last week's meetings, pricing of the gas was the only issue agreed upon by all the parties. Now, even this is on the list of thorny issues, in addition to the transit fee, the route of the pipeline and security.

An official in the ministry said Iran's shifting stand over the two-year-old LNG supply deal had made India more wary. The deal to import 5 million tonne LNG per year from Iran is stuck as Iran is not willing to supply LNG at the contracted price of $3.215 per million British thermal unit (mBtu).

At the time the deal was signed in June 2005, the price of crude oil was at $31 a barrel. Iran now wants $4.78 per mBtu.

"When they are not honouring an already signed contract, why should we sign more contracts with them?" said the official.

The pipeline deal should be linked with the LNG import deal, said a Delhi-based analyst.

There is one more issue bothering the petroleum ministry officials. The 2,100-km pipeline is proposed to be built by each country in its own territory, changing a previous understanding that the three countries will invest jointly in the entire pipeline.

"This puts us at the mercy of the two other countries. As India will have no equity in the pipeline in the other two countries, they will not be answerable to us in case the taps are turned off," the oil ministry official said.

Iran would lay a 1,100-km pipeline from the Persian Gulf to the Iran-Pakistan border while Pakistan would lay a 1,035-km line from its border with Iran to the Indian border, according to the deal.

On the record, officials are putting up a brave face. Petroleum Minister Murli Deora said last week that he expected a framework agreement to be signed after a ministerial-level meeting scheduled in Pakistan later this month.

Iran has also invited Prime Minister Manmohan Singh and Pakistan President Pervez Musharraf to Tehran in August to sign the final pact.