Indian firms to ink production-sharing contract with Iran

New Delhi: In what could be a new chapter in India’s relationship with Iran, local firms may take up Iran’s offer of a production-sharing contract (PSC) to develop the Farzad-B gas field in its offshore Farsi block, a top petroleum ministry functionary said.

add_main_imageIran has offered the first such pact globally since the 1979 revolution that overthrew the monarchy in Iran to an Indian consortium comprising ONGC Videsh Ltd (OVL), Indian Oil Corp. Ltd (IOC) and Oil India Ltd (OIL), which won a bid for the block in 2002 from National Iranian Oil Co.

“We are taking that (offer),” the official said, requesting anonymity.NextMAds

Although the Indian consortium didn’t have ownership rights earlier, it was to be paid a 15% return on investment once it was awarded development rights. The PSC changes that with a share in the production offered by Iran. Indian firms were earlier non-committal because Iran faces sanctions due to its nuclear programme.

In response to a question about sanctions hitting companies who would take this up, the person said, “There are methods to do it. I don’t want to spell it (out). We will do it.”

This comes in the backdrop of US and European Union (EU) sanctions on Iran over its nuclear programme. Any company that does business with Iran faces these sanctions. Iran maintains it is developing nuclear energy for peaceful purposes and not to make bombs.

OVL, the overseas arm of state-owned explorer Oil and Natural Gas Corp. Ltd (ONGC), is the operator of the block, in which it holds a 40% stake. IOC has an equal stake and the balance 20% is held by OIL.

An IOC executive asked Mint to contact OVL since it is the operator in the block. “They are the lead from the Indian side in all the discussions,” the executive said, also requesting anonymity.

The block is estimated to have reserves of up to 21.68 trillion cu. ft (tcf), with recoverable reserves of around 12.8 tcf. Developing the gas field, together with the construction of a liquified natural gas terminal to transport the gas, is estimated to require an investment of $8-9 billion. The investment for exploration and production work will amount to around $5.5 billion.sixthMAds

An OVL executive confirmed the development and said, “The block is estimated to have 13 tcf from one formation. Then there are other formations, which can have more gas. All this gas can come directly to India. So much so that it can justify a separate offshore pipeline to India, which is feasible. Why should we leave it for others. We should take it as we have currently been made this offer by Iran.” He too declined to be named.

International sanctions, combined with the ones by United Nations (UN) Security Council that include strictures against Iran’s energy and banking sectors, could hurt firms from other countries doing business with Tehran.

“We are working on a way out to work around this problem. It is very sensitive,” said the OVL executive quoted above.

India is the world’s fourth largest oil importer and a major customer for Iran’s 1.7 million barrels per day of oil exports. It needs to import fuel given the limited nature of domestic energy sources. India’s dependence on imports is as high as 80% for crude and 25% for natural gas. India’s energy demand is expected to more than double by 2035, from less than 700 million tonnes of oil equivalent (mtoe) now to around 1,500 mtoe, according to the oil ministry.

“Its a significant initiative on India’s part. In the last few statements, the foreign minister and the Prime Minister have said that India needs to maintain this relationship with Iran because of our hydrocarbon dependency. India hasn’t signed on the US wish list,” said C. Uday Bhaskar, former head of the National Maritime Foundation.

Curbs imposed by the West on Iran for its suspected nuclear weapons programme have affected crude oil sales by the country. In April-December 2012, India imported 9.69 million tonnes (mt) of crude oil from Iran valued at ₹ 24,814 crore. After the sanctions, Iran dropped to seventh position as a supplier of crude oil to India for the April-December 2012 period from the second spot in 2009-10.

“India has maintained a balance and our relationship with Iran is not an endorsement of its nuclear programme,” said Bhaskar, who is now associated with the South Asia Monitor, a New Delhi-based policy forum.

While the spokesperson for the petroleum ministry declined comment, S.K. Srivastava, chairman and managing director of Oil India, didn’t respond to phone calls or a message left on his mobile phone.

Iran’s oil minister Rostam Ghasemi visited India in May to discuss a range of issues including crude oil purchases, marine insurance, re-insurance cover for Indian refineries, and arrangement of ships for transportation.