PRIORITIZING INDIA'S ENERGY DIPLOMACY AND

C O N F I D E N T I A L SECTION 01 OF 03 NEW DELHI 003878 SIPDIS E.O. 12958: DECL: 05/25/2015 TAGS: PREL ENRG EPET PK XA ZK ZP IN SUBJECT: PRIORITIZING INDIA'S ENERGY DIPLOMACY AND OPPORTUNITIES REF: A. NEW DELHI 3770 ¶B. NEW DELHI 2509 Classified By: Charge Robert O. Blake, Jr., for Reasons 1.4 (B, D) ¶1. (C) Summary: Ministry of Petroleum Additional Secretary (International Cooperation) Talmiz Ahmad outlined India's priorities for accessing more foreign fuel sources in a May 24 meeting with Charge and Emboffs. While domestic fuel subsidies continue to consume much of his attention, Minister Mani Shankar Aiyer is working hard to cultivate additional sources of energy in the Gulf, Africa, Central Asia, and South Asia. On Iraq, while Ahmad was confident that the GOI would act on recommendations made by Special Envoy to West Asia, Ambassador C. Gharekhan, he was personally not optimistic that large-scale engagement would be forthcoming due to GOI security concerns. With no new energy initiatives taking hold in the Gulf (although the region provides two-thirds of India's oil and gas imports),the GOI is seeking new sources in Africa, in addition to its $2.8 billion investment in Sudan. Projects in Central Asia will take time to come to fruition, but the proposed Iran-Pakistan-India pipeline is generating ideas within the GOI about how to structure the deal in light of US sensitivities. Finally, the GOI has appealed for greater US partnership in the hydrocarbons sector. End Summary. ¶2. (C) Ahmad is a career Foreign Service Officer who was brought into the Petroleum Ministry as part of Aiyer's effort to develop a more ambitious "Energy Diplomacy" (Ref B). He previously served as India's Ambassador to Oman. Referring to the GOI "Hydrocarbons 2025" report, which warned that India's current 70 percent energy deficit would reach 85 percent by 2025, Ahmad briefly outlined India's priorities to boost both its domestic and foreign energy sources. Domestic capacity for fuel production is so low, however, that even doubling the current volume would not gain much. Rather than focusing on increasing domestic fuel production, most of the Ministry's political energy is currently spent on the contentious issue of domestic fuel subsidies. The GOI has stated its intention to curb its massive subsidies for fuel, but Ahmad admitted that this may not happen, as most Indians cannot afford market prices for basic cooking fuel or diesel. By creating a new division of International Cooperation, Minister Aiyer is shifting some of the ministry's attention toward cultivating foreign sources of energy. Business As Usual in the Gulf -------------- ¶3. (C) On boosting foreign fuel sources, Ahmed spoke about GOI priorities and projects in the Gulf, Africa, Central Asia, and in its own region. Despite GOI efforts to develop a more multi-faceted partnership with Gulf countries, Ahmad described India's relationship with those states as still that of "buyer and seller," rather than one of strategic partnership. He noted with particular disappointment Saudi Arabia's lack of interest in collaborating on oil refineries and other projects, despite Minister Aiyer's recent visit to the Kingdom to lobby their support. Violence Restricts Engagement in Iraq -------------- ¶4. (C) While confident that the GOI would make every effort to act on recommendations made by Special Envoy to West Asia, Ambassador C. Gharekhan, upon his return from his current mission to Iraq (Ref A),Ahmad was personally skeptical that large-scale engagement in Iraq would be forthcoming in the near term due to spiraling violence. Recalling his involvement in Iraq during the negotiations for the release of three Indian hostages in 2004, he said, "To be frank, the problems are inherent in the occupation...resentment of the occupation is all-pervasive." However, Ahmad was confident that the GOI was actively looking for ways to engage in the country, starting with reviving the Joint Indo-Iraq Commission, chaired by the two Petroleum Ministers. Ahmad said that Minister Aiyer has invited his Iraqi counterpart to Delhi to resurrect the Joint Commission later this year. Seeking New Sources in Africa -------------- ¶5. (C) The GOI is also turning its attention to petroleum sources in Africa, namely, in Angola and Nigeria, as well as newer areas in Niger, Chad, Gabon, Congo, and the DRC, in addition to its already large investments in Sudan. According to Ahmad, African countries are interested in Indian participation in their energy bids to provide a "fresh presence" and "balance" among the competitors, but India still finds it difficult to lobby effectively for inclusion in the bids which are usually done on a nomination basis. The GOI already has significant commitments in Sudan, with $2.8 billion in investments, including the oil pipeline from Khartoum to Port Sudan. Aiyer will visit key African countries this year to assess opportunities for increased fuel trade, Ahmad stated. "Still a Long Way Off" in Central Asia -------------- ¶6. (C) Ahmad described two projects the GOI is pursing in Central Asia: Kazakhstan's offer of two oil exploration blocks in the Caspian Sea, and the proposed Turkmenistan-Afghanistan-Pakistan pipeline, although he admitted both are "still a long way off." Traversing extremely rugged geographic and political terrain, the proposed Turkmenistan pipeline is "the weakest project in the region" because of uncertainties about the volume it might deliver and how much of that volume has already been committed to Russia, the Additional Secretary observed. Iran-Pakistan-India Pipeline Generates Ideas -------------- ¶7. (C) Ahmad spoke at length about options for structuring the proposed Iran-Pakistan-India pipeline to minimize the risk to New Delhi and Indian companies in light of potential US sanctions under the Iran Libya Sanctions Act. In the past, he noted, the GOI would not consider any pipeline that crossed Pakistan, but the advent of better Indo-Pak relations has fueled more progressive thinking within the GOI about how to use this project to its best political and economic advantage. Rather than investing capital in the project at the outset -- a move that may trigger sanctions under US law -- the GOI wants to limit its role to that of buyer, either at wellhead, or upon delivery at the Indian border. Ideally, the GOI would purchase the fuel at the wellhead free on board, then a consortium (with an India joint venture partner) would take over transport. The advantage of such an arrangement, according to Ahmad, is that the GOI would not have a contract with Iran after the initial purchase, but would still have an equity share in the project, and an Indian company would be involved in the consortium. The Charge cautioned that even a structure that involves an equity share could trigger sanctions. Ahmad stressed that this is only an example of the possible options for structuring the deal and that other models were also being examined. ¶8. (C) Besides considering models for how India may be involved in the project, the GOI has already had two rounds of discussions with Iran, but none yet with Pakistan, nor have Iran and Pakistan discussed the deal separately, Ahmad stated. If there is political consensus within the GOI to pursue the project, the GOI would embark on a trilateral government agreement, followed by a detailed feasibility study. Ultimately, price will be the determining factor in the GOI decision about whether to participate in the project, Ahmad said. Minister Aiyer is scheduled to visit Pakistan the week of June 1 for more detailed discussions. ¶9. (C) Charge asked about other energy alternatives as these projects are being negotiated. Ahmad said the GOI will seek to provide gas via pipeline from Iran and/or Turkmenistan for northern India, and gas from Myanmar to power projects in the East, while the south will get LNG from Myanmar, Indonesia and the Gulf for petrochemical projects. He also described the possibility of building a spur to the proposed Myanmar pipeline so gas from the Indian state of Tripura can be exported. Appeal for Hydrocarbon Partnership -------------- ¶10. (U) Charge noted the opportunity to press forward on energy issues during Deputy Planning Commissioner Montek Alhuwalia's visit to Washington at the end of May. Ahmad expressed hope that there would be more US interest in engaging with India in hydrocarbons, especially in the area of research and development. ¶11. (U) Minimize considered. BLAKE