BUSINESSMEN AND
economists who have misgivings about the creditworthiness of one of their
projects do not usually advertise that fact when they are in the market
for a loan. Which is why it was surprising to see Prime Minister Manmohan
Singh being so candid in an interview to the Washington Post on
Wednesday on the bankability of the proposed gas pipeline from
Iran.
Asked about India's discussions with Iran on the
pipeline, the Prime Minister said India desperately needed new sources of
energy. He then added: "But I am realistic enough to realise that there
are many risks, because considering all the uncertainties of the situation
there in Iran, I don't know if any international consortium of bankers
would probably underwrite this."
Whether he deliberately meant to do so or not, Dr.
Singh's last sentence is likely to knock the stuffing out of the ambitious
project's financial prospects. What the Prime Minister has done is to give
international bankers who were not exactly queuing up anyway because of
the fear of U.S. sanctions a good reason not to touch the project, which
is vital to India's energy security in the near to medium term.
In what is another first in the Indian discourse
on the pipeline, the Prime Minister has linked the riskiness of the
project to "the uncertainties of the situation there in Iran." This is,
presumably, a reference to the election of Mohammed Ahmadinejad as
President of Iran earlier this month. Or, more precisely, to the negative
reaction in Washington to the Iranian electorate's choice of a man the
U.S. says is a "hardliner."
Shift in India's stand?
Taken
together with Monday's deal on nuclear energy with the United States, the
Prime Minister's new-found scepticism on the Iran pipeline will heighten
the suspicion that the Bush administration is extracting a very heavy
price from India in exchange for recognising it as a state with "advanced
nuclear technology." Though Dr. Singh told reporters prior to his
departure from Washington on Thursday that a decision on the pipeline
belonged to India, Iran and Pakistan alone and that "outside parties" had
no role to play, his remarks to the Washington Post certainly suggest a
major shift in the Indian position is already under way.
Now that
the grand energy `bargain' has been struck in
Washington, one can safely predict that the tone and tenor of
discussions about the pipeline within the "strategic community" in India
will shift from qualified support to outright hostility. All the old
arguments about becoming dependent on Pakistan, paying transit fees to
the Musharraf regime, wanting reverse transit rights, safety and security
will be recycled in order to justify walking away from a project which
Dr. Singh himself so boldly put onto the energy and diplomatic agenda of
the country earlier this year.
In proposing an "energy dialogue"
with India when she was in New Delhi in March, U.S. Secretary of State
Condoleezza Rice was the first to explicitly link U.S. flexibility on the
nuclear question to the Iran pipeline. Her advice that India abandon the
Iranian project drew a spirited public rebuttal from External Affairs
Minister Natwar Singh but a lot has changed since then. For one, the
unexpected election of Mr. Ahmadinejad has forced the Bush administration
to rework its sums, as have the recent attempts by China to speak of a new
security framework for Asia and the Shanghai Cooperation Organisation's call for the U.S. to
declare when its troops will leave Central Asia . For another,
the Manmohan Singh government itself showed a new willingness to engage
with America's strategic agenda in Asia.
On Monday, Washington
delivered on its promise of an agreement on the nuclear front. If the new U.S.-India defence framework took New Delhi
up to the door, the key to its unlocking lay in the safeguards and test
ban concessions India made. What is left now is the implementation. And
India has been told in no uncertain terms that if Congress is to legislate
the changes President Bush has committed he could have used a
Presidential waiver but chose not to the pipeline deal with Iran must
not go through.
Those who argue that this condition is an
acceptable price to pay do not realise the crucial role hydrocarbons and
in particular natural gas will have to play as a source of energy for
India's growing economy.
Nuclear energy today provides barely four
per cent of India's energy needs. If the Bush administration is able to
implement its commitments, the Indian nuclear energy sector could
potentially get a boost in the short-term, though many former and serving
scientists in the Department of Atomic Energy have grave reservations
about the compromises the Indian side will have to make. Even with the
most optimistic predictions, however, nuclear power will generate, at
best, some 20 per cent of our energy needs by 2030. Where is the remaining
80 per cent going to come from?
Piped gas from Iran is a low-cost
source but even this would need to be supplemented by gas imports from
Myanmar, Qatar, and Central Asia. Importing gas in liquefied form is an
option but the costs are much higher. Security of transit through Pakistan
remains an issue but there are a number of financial and political
solutions available, including the involvement of China as the end-point
of the pipeline.
The Iranian project is not only vital for India's
medium-term energy security, it is also the key which will help us unlock
the potential of a pan-Asian energy grid involving Central Asia and
China as well. U.S. opposition to the pipeline is not just
because of its antipathy to the Islamic regime that is in power there. It
is because Washington knows the involvement of Iran in this kind of
project will undo the efforts it has made all these years to dominate the
transit routes of Asian energy. Losing interest in the project or
discouraging potential investors from getting involved is the last thing
India should be doing.