January 03, 2017
Iran and Turkey have resolved a five-year-old dispute over the proper price Turkey should pay for Iranian gas and, as a result, Iran will have to pay Turkey almost $2 billion.
Hamid-Reza Araqi, the chief executive of the National Iranian Gas Company, was quoted by the Mehr news agency last Tuesday as saying, “Iran should pay $1.9 billion in compensation to Turkey. This amount will be paid in installments,”
Iranian government officials had previously said it expected the amount of compensation to be around $1 billion.
The payment follows the ruling of an international tribunal saying Ankara was overcharged for Iranian gas.
Iran signed a contract in 1996 to export up to 10 billion cubic meters of gas per year to Turkey over 25 years. But Botas, Turkey’s national pipeline firm, appealed in March 2012 to the International Court of Arbitration, saying Tehran had overcharged it.
The court ruled last February that Iran supplied gas to Turkey at a higher price compared to other producers in the region and must cut its exported gas price by somewhere between 10 percent and 15 percent. The court told Iran and Turkey to negotiate the exact figure. Araqi said the agreed reduction was $13.3 percent.
Iran, which started delivering gas to Turkey in 2001, is the second largest gas supplier to Turkey after Russia.
The previous price of Iranian gas was never officially disclosed, but according to media reports, it was much higher than the price of Russian and Azer-baijani gas.
“The Turks initially sought a 25 percent reduction in Iran’s gas price, but the two sides eventually settled on 13.3 percent,” Araqi said.
Turkey did not say what reduction it sought from the court, but 25 percent was not the ceiling in play for the last year. That was 15 percent. Araqi’s characterization appeared designed to make it seem Iran had done better in the negotiations.
Although Iran has the second largest gas reserves in the world, it only exports gas in significant quantities to Turkey. The Soviet Union ceased buying any Iranian gas in 1979 when the revolutionary government tried to jack up the price unilaterally. A gas deal with Pakistan was negotiated years ago, but the pipeline in Pakistan has not been built. A pipeline has been built into Iraq, but Iran last month said no gas was being delivered because the financial arrangements for sales have not yet been made.