India warns Pak of pulling out of IPI pipeline project

India has threatened to walk out of the $7 billion Iran-Pakistan-India gas pipeline project if Islamabad did not bring down the fee it wants to charge for allowing flow of natural gas from Iran to India.

At the beginning of the two-day technical level talks here on the project, Indian officials told Mukhtar Ahmad, energy advisor to the Pakistan Prime Minister, that transportation tariff for the 1,036-km pipeline section falling in Pakistan and the transit fee payable to Islamabad has to be brought down for New Delhi to continue in the project.

"Transportation tariff and transit fee impinge on delivered price of gas," a top Indian official said.

The official said New Delhi, drawing from its experience in international pipeline projects, has suggested a transportation tariff of $0.50 per million British thermal unit while Pakistan wants $1.57 per mBtu.

Islamabad is seeking a transit fee of 10 per cent of the gas price at the Indian border (price payable to Iran plus transportation cost) while India is willing to pay a maximum of 5 per cent of the gas price at the Iran-Pakistan border.

"It is a question of $0.65 per mBtu versus $0.25 per mBtu but when taken together with transportation tariff, the price of gas at the Indian border will be almost $1.50 per mBtu costlier," the official said.

After meeting Petroleum Minister Murli Deora and Oil Secretary M S Srinivasan, Ahmad said, "We are very hopeful that we will converge on all the issues" and a tripartite deal will be signed in June.

India and Pakistan are more or less in sync with Iran's latest formula, according to which the price of gas at $60 per barrel crude price comes to $4.93 per mBtu.

"Like we had said previously, the Iranian price formula is acceptable to us," Ahmad said.

The Indian official said the formula was also acceptable to New Delhi but it wants issues of transportation tariff and transit fee to be resolved before communicating acceptance.

"We will tell Iran our mind by mid-April," he added.

Iran plans to lay a pipeline from the giant South Pars gas field in Persian Gulf to carry 90 million standard cubic meters per day of gas.

One third of the volume will be used by Iran for its domestic demand, while Pakistan and India will get 30 mmscmd each.

"The volumes being talked are very small. By the time the pipeline comes (2011), most of the Krishna Godavari basin gas fields would be on peak production that would be sufficient to meet the current deficit," the official said.

India's current availability of 91 mmscmd of gas meets only half the demand. Reliance plans to produce 80 mmscmd of gas from its KG D6 field off the Andhra coast, while Gujarat State Petroleum Corp would produce 40 mmscmd. The ONGC will produce about 20-25 mmscmd.

Iran's new price formula has a floor of $30 per barrel and a ceiling of $70 per barrel of Japanese Crude Cocktail price. If the price of JCC falls within the floor and ceiling, gas will be priced at 0.063 times of the JCC price, plus a fixed component of $1.15.