Nuke deal done, India Looks at a Gas Pipeline

Although plans have been under intense scrutiny for years to build a massive US$7.5 billion Iran-Pakistan-India gas pipeline to satisfy the soaring energy needs of the latter two nations, strategic compulsion, suspicions and disagreements over prices and tariffs have so far hampered progress.

The IPI, as it is known, is a gigantic project, stretching 2,700 kilometers from Iran’s Assalouyeh Energy Zone in the south and stretching over 1,100 km through Iran. In Pakistan, it is to pass through Baluchistan and Sindh and link up in Rajasthan and Gujarat in western India.

Although the IPI has been under discussion for more than two decades, there are indications that at least the Iran-Pakistan stretch of the pipeline may take off soon, while India, with the Indo-US nuclear agreement done, is finally also giving it serious consideration.

Officials in India’s foreign ministry say that the culmination of the Indo-US nuclear pact may lead to a more determined push by New Delhi for the pipeline, partly to demonstrate an independent, balanced foreign policy, unencumbered by US diktats. Washington has opposed the pipeline over Iran’s persistence in continuing its nuclear plans despite European Union and US sanctions.

These are not negligible concerns. The outgoing administration of President George W Bush has repeatedly threatened military action against Iran for its belligerence over Israel and John McCain, who could be elected Tuesday to replace him, has also made tough speeches against Iran. That caused Indian official to tell Rediffusion news: "If there is a war and the US blows up the pipeline project, what will happen to our investment? It is not a matter of a few dollars -- billions of dollars of government money is involved. How can we take such a risk?"

Apart from these issues, the US and even China have been uncomfortable with an energy grid and interdependence that would span Iran, Pakistan and India. India is concerned that the pipeline could instead be routed to China, which has vast energy needs of its own. Both Islamabad and Beijing have expressed interest in such a possibility, despite escalating costs, with Islamabad frustrated by New Delhi’s dilly-dallying.

Earlier this month, Pakistan reiterated its invitation to China to join the project. On return from a visit to China foreign minister Shah Mehmood Qureshi told reporters: ``If it isn’t IPI, it can be IPC (Iran-Pakistan-China).’’ However, with general elections scheduled in India next summer the Manmohan Singh-led Congress government is keen to keep anti-US voters, especially the Muslims, happy, thus bringing the IPI into focus again.

Recently, India’s federal petroleum secretary RS Pandey said: “Negotiations are due (on IPI) but we are on the right line toward progress. Officials of the three countries will meet soon,’’ but did not specify when.

India’s foreign minister Pranab Mukherjee is scheduled to visit Tehran in the first week of November to iron out issues related to the project. According to officials, India has also started exploring ways to bring home the gas discovered by three state-owned oil companies, including explorer ONGC, in the Farsi offshore block in Iran. The federal petroleum ministry is seeking a legal opinion whether the consortium of Indian oil and gas companies can lay claim to the gas. Indeed, many observers see New Delhi’s recalcitrance till now as fallout from keeping Washington happy.

So far, six meetings of the trilateral joint working group (JWG) have taken place, with the last meeting in New Delhi, in June 2007. India missed yet another meeting on the pipeline earlier this month when officials from Iran and Pakistan met in Teheran to discuss the revised project cost and a new pricing formula.

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Frustrated, an Iranian official recently said, “There seems to be no urgency from India. Like last year, India has not joined Iran and Pakistan at the secretary-level meeting in Teheran.”

In April this year, President of Iran Mahmud Ahmadinejad, on a one-day visit to India said: ``All pending issues and agreements (over the IPI) will be finalized within 45 days and given to the leadership of the three countries. Afterwards we will decide.’’

The deadline is well past. However, Indian officials now say that, with the nuclear exemption granted to India by the Nuclear Suppliers Group, New Delhi would like to temper America’s opposition to the pipeline via sops in defense deals and civilian nuclear power contracts estimated to be in the range of US$100 billion.

Indeed, the equations are changing rapidly. The new Pakistan government, under pressure to perform and facing rising energy scarcity, has also been keen to implement the project. Recent reports from Islamabad say that Pakistan and Iran have decided to go ahead with the tri-nation pipeline bilaterally, which India could join at its “convenience.”

The Indian news agency PTI said that the decision was taken during talks between Pakistan’s foreign minister and his counterpart.

It is also apparent that both Pakistan and Iran are keen that India join. Both stand to benefit -- the former via transit fees and latter due to the sale of more gas. Also, should the pipeline be turned to China, the inhospitable and mountainous terrain would not be easy to traverse.

Tehran, given the prospect of more business, meanwhile has made it apparent that it wants New Delhi aboard. In an unprecedented push, Tehran has told India that it would guarantee against any security breaches in the Pakistan stretch of the pipeline.

Officials in India have confirmed reports that in one of its GSPA (Gas Supply Purchase Agreement) proposals with Pakistan, Tehran has told Islamabad that should there be a deliberate cut-off of gas to India by Pakistan, Iran would snap the supply to Pakistan by the same volumes.

Islamabad has so far not reacted to the new condition. India has been concerned about Pakistan controlling a crucial energy supply line, given the hostile relations between the two countries in the past.

The pricing issue will, however, need to be sorted. Since mid-2007 the project has been deadlocked over New Delhi’s concerns about security and the transit and transportation tariff to be charged by Pakistan for the Iranian gas sent to India.

Earlier, India and Pakistan agreed to pay Iran $4.93 per million British thermal units (mBtu). However, with the price of oil currently much higher, Iran has indicated that the price of gas at the India border could now be above $10 per mBtu.

In the past couple of years, since the initiation of the India-Pakistan peace process, there has been a positive momentum to the project.

As per Indian ministry estimates, the IPI will supply 60 million standard cubic metres of gas per day (mcmd), during phase-I, to be shared equally between India and Pakistan. In phase-II, 90 mcmd of gas will be supplied.

Though private sector Reliance Industries is scheduled to begin new gas supplies soon that will ease pressures, officials say that India will need to tap every source, given the rapidly growing demand that could rise to 400 mcmd by 2025.

(Siddharth Srivastava is a New Delhi-based journalist. He can be reached at sidsri@yahoo.com)