Indo-Pak breakthrough on IPI pipeline deal

The $7 billion Iran-Pakistan-India (IPI) gas pipeline seems to be close to finalisation with the government accepting the transportation tariff and the transit fee that Pakistan is demanding.

"The transportation tariff and the transit fee that Pakistan has asked for is according to international standards. There does not seem to be much scope to change that," said Petroleum Minister Murli Deora.

A secretary-level meeting between India and Pakistan is scheduled to be held in New Delhi on June 27, followed by Iran joining talks over the next two days.

This meeting is expected to sort out the remaining issues related to transportation tariff and transit fees. "In July, there will be a ministerial-level signing of the framework agreement for the pipeline," Petroleum Secretary MS Srinivasan said.

Besides geopolitical issues, the pipeline project has faced hurdles because Pakistan is seeking a transportation tariff of $0.70-0.75 per million British thermal unit (mBtu) of gas, while gas-starved India was willing to pay only $0.55 per mBtu. Similarly, while Islamabad has demanded a transit fee of $0.493 per mBtu, India had offered a much lower $0.20 per mBtu.

However, after repeatedly asking Pakistan to lower the transportation tariff and transit fees, India now seems to have accepted Pakistan's demands.

At $60 per barrel price of Brent crude oil, the cost of gas at the Iran-Pakistan border would be $4.93 per mBtu. The gas price at the India border, after paying the transportation tariff and transit fees, would be close to $7.5 per mBtu, analysts said.

India is a gas-deficit country "" the gas available is able to feed just about half the demand for 170 million standard cubic metres per day (mscmd) ""- and has been exploring options of getting gas into the country through transnational pipelines. The 2,100-km IPI pipeline will initially carry around 60 mscmd of gas, to be split between India and Pakistan equally.

Industry watchers say the $7.5 per mBtu price for the Iran gas is high compared to the current domestic price of around $4.5 per mBtu -- the market price charged by Reliance Industries for its gas from the Krishna Godavari basin. In the long-term, however, prices of gas are likely to hover between $5 and $7 per mBtu.

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