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Misunderstanding led to fall of LNG deal: Iran

Iran's new Oil Minister Gholamhossein Nozari has blamed a "misunderstanding" for the fall of the 22-billion dollar deal to export five million tons of liquefied natural gas (LNG) to India.

world Updated: Nov 16, 2007 15:25 IST

Iran's new Oil Minister Gholamhossein Nozari has blamed a "misunderstanding" for the fall of the 22-billion dollar deal to export five million tons 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 in Riyadh.

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 five million tons a year of LNG on June 13, 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 (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 in accordance with the 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 dollars per million British thermal unit (mBtu) but subsequently demanded at least 4.775 dollars per mBtu in view of a sharp rise in oil prices.

New Delhi wants Tehran to honour the contract to supply five million tons LNG at the June 2005 prices and has stated it is willing to pay the higher price for an additional 2.5 million tons 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 per cent of the Brent crude oil price at the time of loading of each consignment plus a fixed price of 1.2 dollars per mBtu. Price according to this formula was to be capped at 3.215 dollars per mBtu at 31 dollars a barrel Brent price. For the initial two years, a 10 per cent discount was allowed, leading to a price of 2.9 dollars per mBtu from 2009 to 2011.

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

First Published: Nov 16, 2007 15:15 IST