India weighs the pipeline odds

Posted in India | 19-Apr-07 | Author: Siddharth Srivastava| Source: Asia Times

Siddharth Srivastava is WSN Editor India.
NEW DELHI - Given current strategic thought that inclines towards the US, New Delhi would perhaps have been more comfortable had the US$7 billion Iran-Pakistan-India (IPI) natural gas pipeline been in abeyance for some time more.

While India does need energy sources desperately, New Delhi could perhaps have been at ease focusing on other sources, including new gas finds in eastern India that can be gainfully tapped for use by power and fertilizer companies, the main consumers.

Washington opposes the IPI pipeline, given its efforts to economically isolate Tehran due to its steadfast independent nuclear program.

However, India's position has been complicated by Pakistan, which has made it clear that it will go ahead with the Iran-Pakistan segment of the IPI if India does not oblige.

While energy access is a critical factor, Islamabad, long used to being mollycoddled by Washington, has been smarting under the US turnaround that has seen India become its new strategic partner in the region.

Apart from business opportunities, Washington has embraced India as the only country in the region that can effectively counterbalance China's overbearing presence.

Last week, the Economic Coordination Committee of the Pakistan Cabinet (ECC), chaired by Prime Minister Shaukat Aziz, approved the construction of the IPI project on a "segmented basis".

According to Petroleum Secretary Ahmed Waqar, under this approach Pakistan and Iran will construct their portions of the project and Pakistan will award contracts worth up to $3 billion.

The ECC also approved in principle the gas sharing (with India) of the IPI project, which is scheduled to start delivering gas to Pakistan from Iran by 2012.

Emphasizing Islamabad's seriousness, Aziz this week welcomed participation of Russian companies in the construction of the pipeline. He said that Russian companies could even lay claim to some of the share capital in the pipeline. Aziz made these announcements during a meeting with Russian Prime Minister Mikhail Fradkov and executives of Russian energy giant Gazprom.
India not sure where to look
There has been no clear position taken by India on the IPI issue in the recent past. This week, India's junior External Affairs Minister, Anand Sharma, said: "The government is studying all the options and [will] take a final decision taking into all factors, including the geopolitics of the situation."

He said India had three options before it: import gas from Iran through a pipeline via Pakistan, ship liquefied natural gas (LNG) through tankers or buy gas on Pakistan's border.

In contrast, last month, Indian Foreign Minister Pranab Mukherjee, following a two-day visit to Tehran, said that New Delhi intends to go ahead with the IPI pipeline despite objections from the United States. "Talks on this pipeline are going on. When I was in Iran, I had categorically mentioned that we are interested in having this pipeline," Mukherjee said.

However, again last month, New Delhi allayed US fears, saying that the pipeline was at a nascent stage due to several teething problems and will take some time before implementation.

The Indian view was conveyed to US Energy Secretary Samuel W Bodman during a meeting with Petroleum Minister Murli Deora. India said the project is weighed down by differences over the price charged by Iran, transportation costs and the transit fee that India may have to pay Pakistan.

Yet, India wants to keep its options open and not be seen as delaying the IPI project, even if the underlying strategy is to keep things on hold.

Politically, it is not wise for New Delhi to acquiesce to US wishes while Pakistan takes the bolder decision to go ahead with what is likely going to be good for the economy. There is a direct relationship between international crude oil prices and inflation in this country, given the dependence on imports.

New Delhi is already anxious about a possible shut-out of Indian interests in Myanmar oil and gas by Russian and Chinese oil firms due to past difficulties with Bangladesh.

The decision by slick operators Russia and China to veto a US-led move in the UN to intervene in the Myanmar junta's alleged human-rights violations has been a key factor in the burgeoning relationship.

To sugarcoat any adverse fallout, the Indian Petroleum Ministry has been regularly putting out press bulletins to emphasize that the domestic availability of natural gas in the country will rise to levels high enough that dependence on outside sources will not be necessary.

"The gas supply position [will] steadily improve from the current level of 70.54 million metric standard cubic meters per day to 192.30 mmscmd in 2011-12," said a recent statement from the Petroleum Ministry. This projection reverses earlier ministry estimates that the gas supply will dwindle in 2011-12.

The increased supply of gas will be possible because Reliance Industries Ltd (RIL) and Gujarat State Petroleum Corp plan to extract gas from 2009-10 from their blocks in Krishna-Godavari (K-G)basin, the statement says. Curiously, the government has not officially recognized the find by RIL in the K-G basin.

Deora is scheduled to visit Pakistan next month to sort out differences over transit fees. Deora discussed the matter in detail during a meeting with Aziz in New Delhi recently, when he reportedly expressed India's reservations over "high charges" being quoted by Islamabad.

Aziz also met Indian Prime Minister Manmohan Singh, but no agreement could be reached about the transit fees. Aziz reportedly offered to buy 60 million standard cubic meters of gas per day from Iran, use half of it in Pakistan and sell the rest to India at the India-Pakistan border.

According to reports quoting Pakistani officials, this formula could circumvent India's need to deal with Iran, be concerned about security along the 1,035km pipeline in Pakistan and the transit fees.

But experts say that it would be better for India to pursue a pipeline as the other option could make the country more vulnerable to Islamabad exercising control over energy supplies. Flows through pipelines can be brought under international laws.

As per the calculations, Iran wants to sell natural gas to India and Pakistan at $4.93 per million British thermal unit (at $60 per barrel crude oil price). Pakistan wants to add a transit fee (10% of the gas price) and a transportation tariff, making the delivered price of gas at the India-Pakistan border $7 per mBtu.

India, on the other hand, has offered transit fees of 15 cents per mBtu. India's argument is that, ideally, Pakistan should not charge any transit fees as the pipeline is a joint project and about half of it, from Iran's South Pars fields to the Pakistan border, will be common to both countries.

Iranian Oil Minister Kazem Vaziri Hamaneh recently said that the three countries have agreed on a price formula and now Pakistan and India should hold talks on the transit issue.

India will have to make up its mind on the issue.

Siddharth Srivastava is a New Delhi-based journalist.