India and Iran close to signing SPA for LNG import

Vol 9, PW 2 (04 May 05) People & Policy

India and Iran are close to signing a Sale Purchase Agreement (SPA) for the import of LNG after 2010.

We are very close to signing the SPA, a well-placed source tells this report. Only a few minor issues need to be sorted out.

It could be signed as early as this year. One critical area still needs to be addressed: payment security mechanism.

Other issues relating to the composition of the LNG have been resolved, in Indias favour. Iran wanted to export only lean gas, stripped of butane and propane, pleading that it is bound by government orders.

But the GAIL-led Indian consortium wants rich LNG, similar to the LNG supplied by RasGas at Dahej. We understand a mid-way compromise was reached during a GAIL-led visit on 22nd April, whereby the gas would be neither completely lean nor completely rich.

There will be some components like C2, C3, C4 in the gas, we are told. Gas composition was more of an administrative issue for the Iranians.

But for us it is one of the critical issues. Also agreed between India and Iran was that any LNG paid for by India but not taken in a particular year could be adjusted over a maximum five-year period.

Another area of agreement centres on dispute resolution. Both India and Iran have agreed that any disputes under the SPA will be referred to the United Nations Commission on International Trade Law (UNCITRAL).

One issue already resolved centres on pricing. In January, both sides agreed that the LNG price would be linked to Brent crude on a sliding scale for the first two years and then fixed at a ceiling of $3.21 per mmbtu.

First LNG from Iran is scheduled to land in India after 2010, either at Dahej or Kochi, but not at Dabhol. GAIL is the leader of the Indian consortium set up to buy LNG from Iran and will get 40% of any LNG sold in India.

Indian Oil, ONGC and Oil India will share the balance.