India may opt out of IPI if Pakistan refuses to drop gas transit fee

April 24th, 2008 - 8:01 pm ICT by admin  

New Delhi, Apr.24 (ANI): India is likely to issue an ultimatum to Pakistan to drop the demand for a transit fee, which if refused, could lead to New Delhi opting out of the proposed Iran-Pakistan-India natural gas pipeline project.
Petroleum and Natural Gas Minister Murli Deora will be holding talks with his Pakistani counterpart Khwaja Muhammad Asif on April 25, and according to sources and media reports, the message that will be sent across is that if transit fee is further added on to the already high cost of gas, the whole project might become unattractive for India.
New Delhis apparent confrontational stance has been 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.
Indias position was that the fee be nominal considering the value it brought into the project by its participation.
Pakistan has disagreed, saying that the transit fee should be based on relevant international practices.
Indias position was that 15 cents per mBtu (million British thermal unit) was a fair and reasonable fee that would provide Pakistan 180 million dollars and save more than 350 million dollars in costs each year.
The changed position for the bilateral talks, according to an Indian Express report, is that India has made enough sacrifices to deserve the waiver.
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.Indias participation has brought in higher gas volumes and economies of scale, yielding lower transport tariff and other costs. This would improve the projects 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 latters 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.
The message to Iran from India is that there is a need to take a pragmatic approach to reach a common ground in consonance with the global norms.
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 Irans stand that disputes be adjudicated in Tehran.
Indias position is that the gas be delivered at India-Pakistan border as mandated by its Cabinet.
Besides this, New Delhi 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.
Pakistan, which in June 2007 estimated the transport tariff at 59 cents per mBtu, is now asking for 1.17 dollars 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 Khwaja Asif in Islamabad, Deora would participate in the signing of the Heads of Agreement on the alternate Turkmenistan-Afghanistan-Pakistan-India gas pipeline. (ANI)

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