Indo-Iran gas talks fail to reach conclusion

Jun 28, 2004 02:00 AM

Indo-Iran discussions in the petroleum sector taking place in Delhi raised hopes of exciting offers for India's growing market for natural gas but failed to reach any conclusion, with both parties hitting a deadlock on major issues like the pricing of LNG and the rate of return for the Indian companies.
The Indian oil companies planning to invest in Iran were not agreeable to the rates of return offered by the Iranian government on their investments. Since Iran has a policy of not offering equity in upstream projects, companies investing in Iran can only negotiate on the rate of return to be earned on their capital investments.

Talks are on to offer a service contract in Kushk-Husseineih oil field which has a capacity to produce 300,000 bpd of crude. Iran has offered a rate of return linked to LIBOR. Sources said that the rate of return worked to about 15 % linked to LIBOR rates, assuming that LIBOR is 5. However, a reduction at LIBOR rates would lead to a fall in the rate of return.
TheIndian companies, however, have demanded a fixed rate of return instead of linking it to a variable like the LIBOR rates. The deal is all the more difficult as service contracts as opposed to equity deals are rare and is specific to some countries like Iran.

There is also a disagreement over the quantities being offered. While India will have to buy the crude at market rates (no discounts), Iran has offered only 60,000 bpd whereas the demand has been for double the quantity -- 1,20,000 barrels.
On the LNG pricing issue, (India plans to buy 5 mm tons of LNG) there is as yet not agreement between the two sides, and negotiations will continue tomorrow as well. High level discussions were held in the capital as a visiting Iranian delegation met oil sector officials and top honchos of the oil companies.

Source: The Economic Times
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