GOI REMAINS SKEPTICAL ON IRANIAN GAS PIPELINE AND

S E C R E T SECTION 01 OF 04 NEW DELHI 002254 SIPDIS SIPDIS 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 NEW DELHI 00002254 002 OF 004 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 SIPDIS 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. NEW DELHI 00002254 004 OF 004 PYATT