ONGC arm delays plan to invest in Iran gas field after US sanctions

Business Standard – The investment plan of ONGC Videsh (OVL) on Iran’s Farzad-B gas field in the Persian Gulf seems to have been put on the back burner, with banks and operators having expressed concern about sanctions by the US.

A source said a deal was expected to be signed on September 15 last year but got postponed after a European and an Australian consultant company withdrew from their contracts. A similar concern was raised by State Bank of India (SBI) that had an exposure to several projects of the fully-owned subsidiary of Oil and Natural Gas Corporation (ONGC).

“OVL’s investments in Brazil and Sudan were run from our Amsterdam office and SBI has major exposure to it. We were told those investments might also get affected if we go ahead with the Farzad deal at a time when the US has imposed sanctions,” said an official. The Indian government had been hoping since 2009 to secure a contract for the gas field but the sanctions against Teheran proved a spoiler.

Another official told Business Standard around 75 per cent of the deal was finalised by May 2018, which was when the US government unilaterally withdrew from the earlier nuclear deal with Iran. It had announced sanctions from November but India and seven other countries got a temporary breather. “We were of the belief that the deal might sail through but the fresh decision seems a final nail in the coffin of the Farzad deal,” said an industry source.

Farzad-B’s gas reserve is estimated at 21.6 trillion cubic ft. The major point of contention between India and Iran was regarding the setting up of two pipelines and also the money for the development plan, the source said, adding the Indian company wanted only one pipeline.
A contract was signed in December 2002 by a consortium of OVL, Indian Oil Corporation and Oil India for exploration in the Farsi offshore block. This contract ended in June, 2009, after declaration of commerciality of the block, based on the gas discovery at Farzad-B. When the earlier sanctions were lifted, after the nuclear deal with then US President Barrack Obama, the government of Iran had increased its demands on the Indian negotiators for Farzad. Iran’s administration had also hinted about giving out the project to Russia’s Gazprom or to Chinese majors.

Earlier this month, Iran Oil Minister Bijan Namdar Zanganeh had said negotiations were underway with the Indian consortium-led by OVL to expand the Farzad-B field.

“There is no concern regarding technicalities. But, the Indian company (seemingly) has financial considerations, which is why talks have not produced the desired results,” he told journalists.