GOI REMAINS SKEPTICAL ON IRANIAN GAS PIPELINE AND

S E C R E T SECTION 01 OF 04 NEW DELHI 002254

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DEPT OF ENERGY FOR A/S KHARBERT, TCUTLER, CGILLESPIE
STATE FOR EEB DAS PSIMONS, JEIGHMIE, SGALLOGLY
STATE FOR SCA/FO PDAS SMANN, RDEUTSCH

E.O. 12958: DECL: 05/10/2022
TAGS: EPET ELTN PREL EINV PGOV IN PK IR
SUBJECT: GOI REMAINS SKEPTICAL ON IRANIAN GAS PIPELINE AND
LNG NEGOTIATIONS

REF: A. STATE 52441


B. NEW DELHI 2148

C. NEW DELHI 1927

D. NEW DELHI 1359

E. NEW DELHI 819

F. NEW DELHI 2101

Classified By: CDA Geoffrey Pyatt for reasons 1.4 B,D


1. (S) SUMMARY: EconMinCouns delivered to Ministry of
Petroleum and Natural Gas (MPNG) Secretary M.S. Srinivasan on
May 9 information that he had requested (ref A) confirming
that -- contrary to top Iranian officials' claims to
Srinivasan -- Iran does not have domestic engineering and
technological capability to build liquefied natural gas (LNG)
facilities and would have difficulty obtaining such from
foreign sources. Srinivasan, who is India's main negotiator
for the proposed US$7 billion, 2,500-kilometer
Iran-Pakistan-India (IPI) natural gas pipeline (Ref B,C,D,E),
claimed that: (i) MPNG Minister Deora's recent supportive
statements on the IPI pipeline have been aimed at placating
his domestic constituency; (ii) no agreement with India has
been reached or is likely to be reached in the near future on
the IPI pipeline; (iii) the GOI has seen no progress this
year on the basic IPI project issues of pricing and project
structure; (iv) the GOI is displeased over Iran's recent cut
by 2/3 of its offered volume to India of natural gas via the
pipeline; and (v) the Iran-India $21 billion LNG agreement of
June 2005 remains deadlocked over Iran's demand for
renegotiation of the original price. Separately, Ministry of
External Affairs (MEA) Minister of State Anand Sharma
expressed to CDA on May 9 the GOI's frustration over Indian
domestic political fallout from perceived U.S. congressional
pressure on the GOI over Iran. MEA Additional Secretary K.C,
Singh, who was formerly Ambassador to Iran, told Charge that
there is no way the IPI pipeline would ever be built no
matter what contracts are signed. END SUMMARY.


2. (S) IRAN LACKS LNG CAPABILITY: EconMinCouns verbally
delivered to Srinivasan on May 9, per instructions and text
of ref A, the contents of USG confirmation of Srinivasan's
assessment that Iran does not have domestic engineering and
technological capability to build liquefied natural gas (LNG)
facilities and would have difficulty obtaining such expertise
and technology from foreign sources. Srinivasan had
requested the USG evaluation because Iran's President, Energy
Minister, and Deputy Energy Minister have told him and other
GOI officials that Iran does have such capability and that
India should jump on Iran's LNG export bandwagon now or risk
being left out when Iran starts large scale LNG exports.
Srinivasan had told us that he did not believe the Iranian
assertions, but that he had requested the USG evaluation to
back up his assessment. Separately, PolCouns informed MEA
Joint Secretary (for Pakistan, Afghanistan, and Iran) T.C.A.
Raghavan about the USG evaluation (ref F).


3. (S) MINISTER'S RECENT STATEMENTS: Srinivasan said that
MPNG Minister Deora's statements in the Lok Sabha on May 3
(ref B) and in the Rajya Sabha on May 8 -- concerning the GOI
going ahead with the IPI pipeline and not succumbing to USG
pressure -- were meant primarily for Deora's constituency and
members of parliament, and that the USG "should not attach
any significance to them." When EconMinCouns asked if some
sort of tripartite agreement on the IPI pipeline would be
signed soon, Srinivasan laughed and said "no, not for a long
time." Despite Minister Deora's meeting with Iranian
President Ahmadinejad and Iran's energy minister on April 26
and despite the public statements and media reports about the
IPI pipeline and LNG agreement of June 2005, Srinivasan said
no progress had been made in the negotiations on the key

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issues.


4. (S) IPI NEGOTIATIONS STILL SLOW: Srinivasan said Iran had
asked for the next tripartite Secretary-level (Deputy
Minister) meeting on the IPI pipeline to convene in Tehran on
May 14-15, which the GOI rejected since India's Parliament is
in session, suggesting instead the end of May. EconMinCouns
suggested that the GOI postpone it indefinitely. Iran wants
the meeting in order to prepare for a ministerial meeting in
June, which Srinivasan said "would not happen." He
underscored that they had been little if any progress since
the last secretary-level meeting last January. "There are
too many imponderables" and "all the noise we have heard and
will continue to here from Tehran, Islamabad and New Delhi
will not amount to much," Srinivasan asserted.


5. (C) PROJECT STRUCTURE: "Who will be accountable for the
overall project?" Srinivasan asked. Unless India gives its
definite yes to the whole project, the IPI pipeline will not
be able to find funding. The Pakistan side is unable to keep
tabs on the upstream source for the natural gas in Iran.
Iranian officials continue to insist that the gas will flow,
but, Srinivasan continued, how can the downstream purchasers,
marketers, and end users in India be assured?


6. (C) CUT IN VOLUME: Iran had offered to sell the project a
total of 150 million standard cubic meters a day (mmscmd) or
about 55 billion cubic meters a year (bcm/y),of which
Pakistan would get 22 bcm/y and India would get 33 bcm/y.
But Iran has since cut the total promised amount to 22 bcm/y
to be split evenly between the two -- with India getting only
11 bcm/y or only one-third of the original proposal,
Srinivasan remarked. India is not keen on participating in a
pipeline for such a "silly little morsel" of gas, he added,
and would have to have the full 33 bcm/y as a minimum for
going ahead with the pipeline.


7. (S) PAKISTAN DRAGS ON TRANSPORT COSTS: Pakistan continues
to sit on the key issue for India of transportation costs and
transit fees for India's share of the natural gas, Srinivasan
continued. He showed us the official letter to him dated May
9 and signed by Pakistan's Secretary for Petroleum and
Natural Resources Ahmed Waqar referring to the secretarial
meeting of January 25, 2007 and confirming Pakistan's
agreement with Iran's proposed rate of US$4.25 per million
British thermal units (mmBtu) for natural gas delivered to
the Iran-Pakistan border under the proposed IPI pipeline.
Speaking derisively about the letter, Srinivasan showed us
his written comments at the bottom of the letter -- that
there had not been any proposal or agreement about the other
key questions of what Pakistan would charge for the
transportation costs and for the transit fee. For Pakistan,
only one number matters -- what Iran charges at Pakistan's
border for the gas; but for India three numbers matter,
including also the transportation cost and transit fee,
Srinivasan stressed. The Pakistan side continues to stall on
these key issues, he emphasized.


8. (S) LNG DEAL DEADLOCKED: The Iran-India $21 billion
long-term LNG agreement of June 2005 remains deadlocked over
Iran's demand for renegotiation of the original price for the
5 million tons annually of LNG (about 6.8 bcm/y). Minister
Deora's discussions in Tehran on the deal -- referred to in
the Congressional letter of May 2 as an indication of a
broadening India-Iran economic relationship -- had resulted
in no change in the deadlock, Srinivasan said. India insists
on the original price for the annual shipments of 5 million
tons, although it would be willing to consider paying a
higher rate for an additional 2.5 million tons annually, he
said. "We have this signed, legally-enforceable contract

NEW DELHI 00002254 003 OF 004


with Iran at the agreed price, but Iran continues to say that
market prices are now higher and they insist on a higher
price," Srinivasan said scornfully. Underscoring Iranian
unreliability, he remarked for the first time that he doubted
Iran would even have the ability to produce the natural gas
for, much less to liquefy and to ship, the original 5 million
tons of LNG, even if India did agree to a renegotiated higher
price. If we agreed to the higher price, the Iranians would
just find another pretext to get out of the agreement, he
said.


9. (C) ONGC DISCOVERY -- SO WHAT?: India's daily The Economic
Times reported front page on May 9 that a consortium of
GOI-owned ONGC-Videsh (Oil and Natural Gas Company's overseas
arm),India Oil Company (IOC),and Oil India Limited (OIL)
had "struck it rich" in Iran's Persian Gulf Farsi Bloc with a
discovery estimated at 10 trillion cubic feet of natural gas
and one billion barrels of oil. In reaction, Srinivasan
shrugged and said "so what?" The MPNG-controlled consortium
is only exploring under a services contract, for which it is
only paid for its services, he explained. Iran does not
allow any equity ownership and so India has no rights to any
share of the reserves or of any future production from them,
Srinivasan said. Separately, Ministry of External Affairs
(MEA) Additional Secretary K.C. Singh, in his conversation
with Charge on May 9, dismissed as "silly and completely
without foundation" the Economic Times article's implication
that some kind of ONGC-Videsh contract was close that could
mean more natural gas and oil for India from that deposit.


10. (S) MEA ALSO DOUBTS IPI: Charge also discussed Iran
issues May 9 with MEA Minister of State Anand Sharma.
Recalling his recent meeting in Washington with
Representatives Gary Ackerman and Joe Wilson, Sharma
expressed great frustration about the Indian domestic
political fallout from the Lantos letter to Prime Minister
Singh. By releasing the letter publicly, Sharma complained,
the U.S. Members of Congress had boxed in the Indian
government and turned the Iran issue into a test of Indian
foreign policy autonomy. Sharma said he had made clear to
Representative Ackerman and the American Jewish Committee
India's absolute opposition to Iran's nuclear weapons
aspirations. However, India's room for maneuver is much less
if it is perceived as acting at U.S. behest. MEA Additional
Secretary K.C. Singh was even more dismissive of the Lantos

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letter's concerns, underlining that there is no way the IPI
natural gas pipeline would ever be built, no matter what
contracts are signed. Drawing on his experience as
Ambassador to Tehran, Singh underlined that the Iranians do
not negotiate in good faith, and argued that all of this was
part of a wider Iranian strategy to sew confusion in the
West. K.C. Singh complained that it was Pakistan that was
pushing hard for the IPI pipeline, not India.


11. (S) Pakistani High Commissioner in New Delhi Aziz Ahmad
Khan told EconMinCouns on May 10 that MPNG Minister Deora had
met with Pakistani counterpart in Riyadh five days
previously. Khan said that during the meeting the Pakistani
minister stressed to Deora that Pakistan intends to go ahead
with the natural gas pipeline "with or without India."


12. (S) COMMENT: Embassy believes that the recent flurry of
statements and media coverage in the United States and India
-- included erroneous reports that an IPI pipeline agreement
was reach earlier this year -- have induced MPNG Minister
Deora and others to publicly support the IPI pipeline to
placate domestic constituencies, even though the GOI
officials do not believe the project would be commercially
viable or that Iran would be a reliable partner.
END COMMENT.

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PYATT