Going back on its earlier stand that Tehran should stick to the terms of its gas supply contract, the Petroleum Ministry has now decided to re-open the contract and has agreed, in principle, to buy gas at a higher price.

In June 2005, GAIL (India), Indian Oil Corporation and Bharat Petroleum had signed Sale Purchase Agreements with National Iranian Gas Export Co (NIGEC) for the import of 5 million tonnes of LNG per annum with price cap restricted at $31 a barrel of crude oil — this translated into $2.90 per million British Thermal Units (mBtu).

Now, sources said, the Ministry is working on a Cabinet note detailing last month’s offer by Iran’s Foreign Minister Manouchehr Mottaki to cap LNG price to crude oil level of $55 a barrel — $4.75 per million British Thermal Units (mBtu), an almost 64% increase.

With increase in shipping and insurance costs as well, the final cost could be almost double for the consumers.

The June deal, which India considers as concluded, got bogged down after Tehran said it was subject to ratification by the Iran government. Later, with hardening crude oil price, Iran raised its ceiling price to $65 a barrel.

The price became a stumbling block in attempts to bring Iranian gas to India and New Delhi told Tehran that the contract could not be re-opened as it was “legally enforceable.” It had even cited legal opinion from India and abroad to make its case.

The contract was in deep freeze until Mottaki’s $55-offer. But considering the large gap in Mottaki’s offer and June 2005 price, Deora wants to involve the Cabinet in reopening of the contract. Incidentally, no such approval was taken when the three Indian firms signed separate SPAs with NIGEC.

... contd.