‘Drop Iran gas transit fee or we walk out’

The confrontational stance was phrased after a meeting of the technical teams of both sides at Islamabad on April 16-17 where Pakistan stuck to its demand that India pay 10 per cent of the gas price as transit fees. India’s position was that the fee be “nominal” considering the value it brought into the project by its participation.

“Pakistan side disagreed with Indian position and maintained its earlier position that the transit fee should be based on relevant international practices,” says the minutes of the meeting. India’s position was that 15 cents per mBtu (million British thermal unit) was a “fair and reasonable” fee that would provide Pakistan $180 million and save more than $350 million in costs each year.

The changed position for the bilateral talks is that India has made enough sacrifices to deserve the waiver. “Pakistan should not look at IPI Pipeline as an exercise in rent-seeking; Pakistan should show its commitment to the project by waiving the transit fees.”

The reasons, to be cited by Petroleum Minister Deora, are:

• Pakistan is not purely a transit country. As Iran gas is being shared equally between India and Pakistan, both have equal stake in the project. Moreover, 70 per cent of the pipeline through Pakistan would be used in transporting gas for both countries.

• India’s participation has brought in higher gas volumes and economies of scale, yielding lower transport tariff and other costs. This would improve the project’s financial viability as also the comfort level of the lenders.

•India has made concessions by agreeing to a lesser gas supply and a longer route through Pakistan. The project initially envisaged 90 million standard cubic metres of gas per day (MSCMD) for India and 60 MSCMD for Pakistan. India later agreed to equally share with Pakistan at 30 MSCMD each because of the latter’s greater need due to its depleting gas reserves. As for the pipeline length, the shortest distance through Pakistan is 750 km but Islamabad wants the southern route which involves an extra 286 km with consequent increase in costs and transport tariff.

• This transport tariff, over and above the high price of gas at Iran-Pakistan border, and the onward supply to consumption centres in India would entail additional costs. If transit fee is added to it, the project would result in “unacceptably high levels of rate of power”.

There is message for Iran as well. While highlighting the “significant economic benefits” all three would derive from the project, India would underline the need for all sides to take a “pragmatic approach” to reach a common ground in consonance with the global norms. “Much needs to be done before we are able to arrive at a conclusion on the outstanding issues.”

Both India and Pakistan want Iran to nominate the whole of South Pars gas field for pipeline supply. They also want supply assurance, asking Iran to get the gas reserve volume certified by an international consultant. Their demand is that any litigation on the pipeline be heard in a court outside the three nations, contrary to Iran’s stand that disputes be adjudicated in Tehran.

India’s position is that the gas be delivered at India-Pakistan border as mandated by its Cabinet. “In case Iran insists to deliver the gas at Iran-Pakistan border, even then provision should be made so that India becomes the owner of gas only when it is delivered at the Indian border. The issue of ownership of gas while transiting through Pak needs to be settled.”

Besides, it wants the project to be executed by “a consortium of technically competent and financially capable international companies experienced in implementing similar projects” with each country holding the option of becoming its member.

It wants GAIL (India) Ltd to be included in the execution of pipeline in Pakistan to make it more bankable and reduce the financing cost. “It would ensure timely execution of the project, as also transparent and efficient management of operations, both during normal operations and more importantly during exigencies. India’s participation would also ensure transparent costing of the project, resulting in agreement regarding the transportation tariff.”

Pakistan, which in June 2007 estimated the transport tariff at 59 cents per mBtu, is now asking for $1.17 per mBtu due to the rise in cost estimates because of an increase in steel prices. India wants the cost of service to be arrived through international competitive bidding (ICB), but Pakistan has indicated that it would execute the project through Pakistan Pipeco and not through ICB.

Before his talks with Asif at Islamabad, Deora would participate in the signing of the Heads of Agreement on the alternate Turkmenistan-Afghanistan-Pakistan-India gas pipeline.