Iran will pay India $50 million in compensation if it is unable to begin work on export of liquefied natural gas by next year.
"Iran has to finalise gas field development plans and award contract for building facilities for liquefying the gas by 2006. Iran will be liable to pay India $50 million penalty in case of delays in awarding these contracts," a top government official said.
India had included the penalty clause in the $22 billion deal it signed with Iran in June this year for import of five million tonnes of LNG for 25 years so that the fuel reaches its shores as per the committed schedule of 2009-10.
"There are critics who say Iran will not be able to get the liquefaction technology (that turns gas into liquid so that it can be transported by ships) because of the US sanctions. We don't want to suffer as a result of this and so the penalty clause," the official said.
Iran, which has world's second largest gas reserves, is banking on French and German LNG technology.
A joint monitoring committee will be set up to review from time to time the progress made on both the sides on making investments in upstream gas development and liquefaction facilities (by Iran) and LNG receipt and regasification terminal and distribution pipelines (by India).
"In case of default by any side to make the promised investment in the agreed timeframe, the contract will be terminated and the aggrieved side will get compensation equivalent to the direct loss it had incurred for making its side of investment," the official said.
The official said Iran has agreed to maintain C2 (ethane) component in the LNG at 5 per cent and sign a strict 'supply-or-pay' contract. In case of default in supplies, Iran will pay upfront 20 per cent of the value of LNG not delivered and will deliver the defaulted quantities at a latter date.
New Delhi will also sign a 'take-or-pay' agreement for 95 per cent of the contracted quantity. "In case of default on India's part to take the delivery of the promised gas, New Delhi will pay Iran 95 per cent of the price of undelivered gas. India will, however, get the undelivered gas at a later date."
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