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India may opt out of Iran pipeline deal

By Ammar Zaidi in New Delhi
Last updated on: January 13, 2006 15:32 IST
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Apprehending adverse US reaction, India is unlikely to participate in building the $7-billion gas pipeline project from Iran via Pakistan and instead may prefer buying gas at its border.

The petroleum ministry is veering around to this idea and may soon approach the Cabinet for a final decision, informed sources said.

In a note being prepared for the Cabinet, the petroleum ministry has suggested that New Delhi enter into an agreement only with Iran for purchase of gas at its border. Tehran would have to court Islamabad for safe passage of the pipeline, uninterrupted supplies and delivery of gas at Indian border.

The ministry feels that setting up of an international consortium - comprising of state-owned firms of the three countries and global energy majors - for construction and operation of one of the world's most valuable projects could be a non-starter due to political and legal opposition from the US.

The project, the note says, may be executed separately by the three countries in their own territories to protect the project from US sanctions. The natural gas would be supplied to India by a transnational pipeline on the basis of an India-Iran bilateral agreement, which provisions 'supply-or-pay' and alternative supplies in case of disruptions.

This agreement would be complemented by an Iran-Pakistan agreement, which would regulate the transit of gas through Pakistani territory and contain effective disincentives for Pakistan if it attempts to interrupt/disrupt gas supply to India, sources said.

Sources said with the three countries separately executing the project in their territories, the project would be protected from US sanctions and even enable American consultants and contractors to participate in portions of the project.

The note says the full responsibility for ensuring safe and secure supply of gas to India would vest on Iran. Tehran would be solely responsible to ensure Indian supplies; arrange alternative supplies in case of disruption, and suffer penalties in case of supply disruptions.

The negative aspect of this arrangement is that the supply to India would be almost entirely dependent on the ability of Iran to ensure that Pakistan fulfils its obligations.

Moreover, gas price under this arrangement could be higher considering Iran could build into the price certain costs for ensuring sustained supplies, sources said.

Sources said the petroleum ministry has suggested a tripartite monitoring mechanism - a technical committee made up of the representatives of the three national gas companies to oversee the technical aspects of the project; an officials' committee to ensure smooth progress in different aspects of the project; and a steering committee at the ministerial level that would address political and other issues.

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Ammar Zaidi in New Delhi
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