India won?t take Iran to court for LNG deal back-out

Although the 5-million- tonne-a-year LNG deal with Iran is legally enforceable, India is open to paying a higher price of $4.5 a million metric British thermal units (mmbtu). A 25-year LNG deal was signed between the two in June 2005 and Iran agreed to sell LNG at $2.9 per mmbtu. But a change in government in Tehran later delayed the deal?s ratification as oil prices rose sharply. Since then, Iran has been demanding India pay more for LNG.

Petroleum secretary MS Srinivasan confirmed to reporters on Monday that the possibility of revising the price was under consideration. Srinivasan told reporters that India was looking to link the LNG price to $45-$50 a barrel of crude oil, which translated to up to $4.5 per million btu. Iran had earlier sought a higher ceiling of $65 a barrel. But the India-Iran LNG deal had a ceiling of $31 a barrel.

?Iranians have been insisting that the June deal is off unless the price is revised. Though we have a water-tight legal case against them for not honouring a signed deal, we do not want to rock the boat now,? PTI quoted a petroleum ministry official as saying.

Under the formula agreed last year, Iran was to charge India 6.5% of the Brent crude oil price at the time of loading of each consignment plus a fixed price of $1.2 per mmbtu. The price, according to this formula, was to be capped at $3.215 per mmbtu at $31 a barrel of the Brent price. For the initial two years, a 10% discount was allowed, leading to a price of $2.9 per mmbtu from 2009 to 2011.

Of the 5 million tonne per annum LNG to be imported from Iran, state-run GAIL will be responsible for marketing 40%, IOC 35% and BPCL the remaining 25%.

Source: The Financial Express, New Delhi
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