Iran blames ‘misunderstanding’ for fall of LNG deal with India

Iran blames ‘misunderstanding’ for fall of LNG deal with India


Riyadh: Iran’s Oil Minister Gholamhossein Nozari has blamed a “misunderstanding" for the fall of the $22-billion deal to export 5 million tonnes of liquefied natural gas (LNG) to India.

“I think there was a misunderstanding of the procedure followed for approval of such deals," he said on the sidelines of the third OPEC Summit here.

After National Iranian Gas Export Company (NIGEC) signed a Sale-Purchase Agreement (SPA) with a consortium of GAIL India, Indian Oil Corp and Bharat Petroleum for export of 5 million tonnes a year of LNG on 13 June, 2005 in Tehran, the contract was to be vetted by NIGEC’s parent company, National Iranian Oil Company (NIOC), he said.

“It was mentioned in (the SPA) that the contract will need approval of NIOC for the SPA to become effective," said Nozari, who was managing director of NIOC prior to being appointed the oil minister by President Mahmoud Ahmadinejad.

“I was not the NIOC managing director when the LNG deal with India was signed but I have studied the whole agreement in details," he said.

Though the Iranian Minister did not say that the deal was dead, one of his aides said that Tehran was considering the deal closed. “If you (India) want LNG, it has to be on a new contract on new terms (price)," the aide said.

The June 2005 LNG deal was signed by the previous government and after Ahmadinejad took over Tehran sought review of price and delayed NIOC board approval. India, on the other hand, sought legal opinion on enforceability of the SPA.

International law firm Gide Loyrette Nouel of France, which had earlier vetted the LNG SPA as per English law, stated that the Side Letter to the SPA (in which the approval of NIOC Board being mandatory for the deal was mentioned) does not amend the Agreement and NIOC’s approval would not constitute a ‘Condition Precedent’. Accordingly, the LNG SPA remained enforceable.

Nozari refused any comments on the issue. “We (India and Iran) need to sit and decide."

Iran had in June 2005 agreed to sell LNG to India at $3.215 per million British thermal unit (mBtu) but subsequently demanded at least $4.775 per mBtu in view of a sharp rise in oil prices.

New Delhi wants Tehran to honour the contract to supply 5 million tonnes of LNG at the June 2005 prices and has stated it is willing to pay the higher price for an additional 2.5 million tonnes of the fuel.

“We have told the Indian side that if they have a serious desire for this contract, they have to suggest a proper price in negotiations because their current price is very low," the Iranian minister“s aide, who wished not to be quoted, said.

As per the formula agreed in 2005, Iran was to charge India 6.5% of the Brent crude oil price at the time of loading of each consignment plus a fixed price of $1.2 per mBtu. Price according to this formula was to be capped at $3.215 per mBtu at $31 a barrel Brent price. For the first two years, a 10% discount was allowed, leading to a price of $2.9 per mBtu from 2009 to 2011.

Tehran now wants a higher ceiling to be raised to $65 a barrel, the LNG price at which would come to $5.425 per mBtu.