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Iran offers oilfield to India on lucrative terms

Updated: May 28, 2013, 10:58 AM IST
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Iran offers oilfield to India on lucrative terms
Iran offers only service contract to foreign companies, giving them a pre-fixed rate of fee.

New Delhi: Rattled by India's sharp cut in purchase of its oil, Iran has offered oilfields on lucrative terms, routing gas pipeline through sea to avoid Pakistan and insurance to refiners provided New Delhi raised oil imports. Iran mounted a high-level delegation led by its Oil Minister Rostam Ghasemi to impress upon New Delhi to raise oil purchases, which were cut to 13.3 million tons in 2012-13 from 18 million tons in the previous year.

In 2013, imports are slated to fall further to around 11 million tons with Mangalore Refinery and Petrochemicals Ltd (MRPL), which bought 3.9 million tons of Iranian oil in 2012-13, not importing any so far this fiscal. "The Iranian side encouraged the Indian side to increase its crude purchase," said an official statement issued after Ghasemi met his Indian counterpart M Veerappa Moily.

"The Indian side explained that it would encourage companies to maintain their engagement in terms of crude oil purchase, taking into account their requirements, based on commercial and international considerations," it said. New Delhi has cut oil purchase from Iran as it is no longer able to pay for the imports in any foreign currency and faces difficulty in getting ships to ferry oil.

Also, insurance companies, which are unable to get backup or reinsurance cover from European counterparts due to Western sanctions against Iran, have refused to provide cover to refineries using oil from the Persian Gulf nation. During talks, Iran offered insurance cover to refineries though Indian side was skeptic how such an arrangement could work in absence of any financial intermediary.

Sources said Tehran was willing to re-route the Iran-Pakistan-India gas pipeline through an under-sea route to avoid going through Pakistan. New Delhi has refused to join the pipeline over concerns of safety of the line in Pakistan. Alternatively, Iran offered to ship the gas in its liquid form (liquefied natural gas or LNG) via Oman.

It also offered a production sharing contract to ONGC Videsh Ltd for the Farzad-B gas field, which is estimated to hold 13 Trillion cubic feet of recoverable reserves - three times the size of known reserves in Reliance Industries' KG-D6 block.

"We had a very fruitful meeting," Ghasemi said describing India as "brother and great neighbour". "There is great relation and history between the two countries," he said after a 150-minute meeting with Moily. While Ghasemi refused to divulge details of discussion, Moily said there were "certain issues and difficulties" which need to be resolved, in apparent reference of Western sanctions making import as well as investing in Iran difficult.

A statement issued later said the two sides also discussed "the marine insurance charged by the Iranian insurance companies for shipment of oil to India and arranging ships for carrying out the voyage." "Both sides also discussed the issue of reinsurance cover for the composite insurance of Indian refineries, which has recently affected crude purchase from Iran," it said.

India asked Tehran to step up imports from India so as to utilise all of the USD 1 billion a month currently paid for oil imports in a Uco Bank branch. "Both sides agreed to continue the cooperation in supply/purchase of crude oil and resolve any outstanding issues of mutual interest," it said adding outstanding issues related to the development of Farzad B gas field will be discussed.

Iran traditionally offers only service contract to foreign companies, giving them a pre-fixed rate of fee for their effort in exploring and producing oil. In contrast, a production sharing contract will give the foreign country ownership of the oil and gas explored and produced as also the freedom to ship it wherever they want.

Indian state-run firms led by OVL's contract for exploring the gas-rich Farsi block too is a service contract which if converted into a production sharing regime would mean that New Delhi can get close to 13 trillion cubic feet of gas.

"We had a very fruitful meeting. We are happy to visit our brother in our neighbour, India which is our great neighbour and brother. There is a great relationship and history between the two countries (and) we are looking for further(ing) (this) relationship," the Iranian Minister said. The minister refused to get into specifics of discussions saying, "We had a good discussions. It is natural that our meetings are about energy sector."

Moily said "hardships and difficulties" in trade with Iran were discussed "threadbare" and the two countries were committed to finding a lasting solution to the problems. "We had certain issues which we discussed threadbare. Both of us expressed our desire to continue (doing) business with each other. Whatever the hardship and difficulties we would like to resolve and get over," he said.

India has cut oil imports from Iran as United States and European sanctions made payments in foreign currency impossible besides making it difficult to find ships and insurance for refineries processing oil from the Persian Gulf nation. Iran-Pakistan-India gas pipeline has been on drawing board for more than a decade due to New Delhi's reluctance to join.

Tehran wants OVL to quickly invest and develop the Farzad-B gas field, which is estimated to hold 21.68 trillion cubic feet of reserves of which 12.8 Tcf can be recovered. OVL has delayed investing USD 5 billion in bringing the field to production for the fear of being sanctioned by the US.

First Published: May 28, 2013, 10:58 AM IST
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