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