IRAN-LIBYA SANCTIONS ACT (ILSA): IRAN-DANA GAS DEAL UPDATE

C O N F I D E N T I A L DUBAI 002819 SIPDIS SIPDIS E.O. 12958: DECL: 5/17/2016 TAGS: AE IR PGOV PREL ETRD EPET ENRG SUBJECT: IRAN-LIBYA SANCTIONS ACT (ILSA): IRAN-DANA GAS DEAL UPDATE REF: A. DUBAI 857; B. 05 ABU DHABI 3440; C. 05 ABU DHABI 3884; D. 05 ABU DHABI 3767 CLASSIFIED BY: Jason L Davis, Consul General, Dubai, UAE. REASON: 1.4 (d) 1.(C) Summary: The Iranian parliament is reviewing the contract to sell Iranian gas to Sharjah-based Dana Gas and threatens to annul it if the selling price is not increased. One MP claims an unnamed middleman got an $80 million kickback in the deal. A Dubai-based Iranian businessman, who claims knowledge of the negotiations, blames Dubai and Abu Dhabi for trying to derail the deal with Sharjah, in order to take it for themselves. End summary. 2.(U) A May 9 story from the Iranian news site, Mehrnews.com, reported that the Iranian Majlis Energy Committee is reviewing, with the help of parliament's research center, all terms of the contract signed between National Iranian Oil Company (NIOC) and the Crescent National Gas Corporation Limited (CMGCL). (Note: Crescent Petroleum awarded the distribution contract to a partly owned subsidiary, Sharjah-based Dana Gas.) The chair of the energy committee said NIOC should either cancel the contract or change the pricing, and that the minimum price for each cubic meter of gas sold should be 25 cents. 3.(U) On May 10, Iran Daily reported that another committee member said "experts" believe there is no need to annul the contract, although Iran could cancel the deal given the recent disclosures that an unnamed "middleman" received an $80 million kickback in the deal. However, he said, if the UAE does not agree to higher prices, Iran could annul the deal and claim Iran would not sell at a cost of less than two cents per cubic meter, as priced in the UAE deal. He maintained that Iran would earn more by injecting the gas into oil wells for recovery projects than by exporting it. 4.(U) Meanwhile, Mehrnews.com reported in the same story that a senior official of UAE's Dana Gas said the week before that NIOC has reached a Gas Sales Agreement (GSA) with CNGCL to deliver natural gas by year-end and denied any delay in the pipeline project. 5.(C) A Dubai-based Iranian businessman who has a shipping business and claims to represent UAE developer EMAAR in Iran told PolEconChief May 13 that he has acted as a consultant to Crescent on this deal. He made a vague reference to the deal and money and one of Rafsanjani's sons but indicated that the contract is very "regular" and has mechanisms for price fluctuations. He claimed Dubai and Abu Dhabi are responsible for stirring up opposition in Iran to the deal because they both want to try to take the contract away from Sharjah, without giving any details. He said Crescent does not know what to do next because NIOC has never formally notified it of any problems. He believes NIOC is holding off notifying Crescent because it has never defaulted on a deal and wants to preserve its reputation. He maintains the contract is sound and that Crescent could probably win a lawsuit. 6.(C) Comment: Several federal and Abu Dhabi officials have told us of their opposition to Sharjah importing Iranian gas (Reftels B-D). Although Abu Dhabi at one time held discussions with Iran to secure a similar contract, the discussions did not progress very far. Given the current international spotlight on Iran, it is difficult to believe that the Abu Dhabi or Dubai governments would try to take the contract. The UAE federal government and the local Abu Dhabi government are fully aware of USG concerns and opposition to the UAE entering into long-term petrochemical contracts with Iran. End comment. 7.(U) This message was cleared by Embassy Abu Dhabi. DAVIS