Energy Sector - 2

[Naresh]

[center]<b><span style='color:green'>IPI project : Iran backs out of gas deal</span></b> <!--emo&:flush--><img src='style_emoticons/<#EMO_DIR#>/Flush.gif' border='0' style='vertical-align:middle' alt='Flush.gif' /><!--endemo-->[/center]

<b>ISLAMABAD : <span style='color:red'>Iran has backed out of the Gas Sales Purchase Agreement, making new proposals for selling gas to the IPI project.</span></b>

Prime Minister Syed Yousuf Raza Gilani has convened a crucial meeting here on Thursday to discuss the matter, a senior government official told The News. <b>Iran wants that in case gas supply to India is wilfully disrupted by Pakistan, then Iran will reduce supply of gas to Pakistan in the same proportion.

Tehran also wants Islamabad to allow one price review before the IPI project gets operational. Under the proposal, Iran will be authorised to re-open the price formula even before the commencement date of the project. <span style='font-size:14pt;line-height:100%'>This would trigger complete uncertainty in the prices of piped gas to be imported.</span>

Iran wants to move the price formula closer to spot market prices, rather than long-term contract prices that is imperative to establish the viability of the project. However, Pakistan is of the view that uncertainty in gas price will make the IPI project economically unviable. Pakistan’s stance is that the price of imported gas must be competitive to alternate fuels in Pakistan market.</b>

Foreign Minister Shah Mehmud Qureshi, who also holds the portfolio of Petroleum Minister, along with Petroleum Secretary GA Sabri will brief the prime minister on the proposed amendments to the Gas Sales Purchase Agreement. Members of the Senate Committee on IPI would also attend the meeting.

The official said Iran also wanted the removal of upper cap of $70 per barrel in the ‘S’ curve, which is a well-known project management tool and displays cumulative costs. The earlier GSPA was agreed on a trilateral basis in the light of gas pricing study by an independent international consultant.

Pakistan wants that any revision proposed by Iran should also be considered on a trilateral basis, unless and until Iran confirms its readiness to proceed bilaterally with Pakistan. The Pakistani side is also of the view that the Principle of “S” curve should be preferably retained. However, considering the current crude oil prices, the existing pricing band of $30 to $70 per barrel, could be suitably adjusted to reflect the current crude oil prices. This concession to Iran would only be considered if Iran proceeded with the project bilaterally.

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