Verdict on Iran-Turkey Gas Dispute Announced

Verdict on Iran-Turkey Gas Dispute Announced
Verdict on Iran-Turkey Gas Dispute Announced

The International Court of Arbitration announced its verdict over the long-awaited Iran-Turkey gas dispute, according to which Iran was convicted for selling gas to Turkey at a higher price compared to the prices of other regional countries, managing director of the National Iranian Gas Company said on Tuesday.

"The verdict is yet to be finalized, but most probably Iran will have to pay $1 billion as compensation to Turkey," Hamidreza Araqi was quoted as saying by Mehr News Agency.

Araqi noted that although the amount of compensation Iran has to pay is not yet clear, there is speculation that it will be about 15% of the exported gas price.

According to the NIGC chief, Iran signed a contract in 1996 to export 10 billion cubic meters of gas per year to Turkey for 25 years.

Turkey’s state-owned oil company Botas had appealed to the International Court of Arbitration regarding the price and volume of Iranian gas in March 2012.

Araqi believes that Turkey compared world energy prices, Russia's gas price and that of non-gas energy markets, and assumed that Iran sells gas at a higher price compared to that of other regional countries.

According to Araqi, the two sides provided ICA with their own proofs and the final decision convicted Iran.

"In its first decision on Iran-Turkey gas dispute, ICA ruled against Turkey’s complaint that Iran is not able to provide the Eurasian country with sufficient gas. Turkey had claimed that Iran reduced the volume of gas exports to Turkey by 25% without mutual consent. Interestingly, Iran was acquitted of all charges, save the $20 billion compensation," he said.

Asked about the terms of paying compensation, the official noted that preliminary negotiations are underway to come to a conclusion, though the terms of the contract must be followed.

The gas expert believes that such disputes are an indispensable part of long-term natural gas contracts. However, based on the "take-or-pay" clause in the contract, Turkey has agreed to pay compensation if it is not capable of importing 10 billion cubic meters of gas per annum from Iran due to technical or operational issues.

According to the clause, the buyer agrees to either receive and pay for a minimum quantity of a commodity as per the contract (the TOP quantity), or pay the applicable contract price for such TOP quantity if it is not taken during the applicable period.

"Turkey had to pay $600 million in compensation to Iran in 2009, as its import volume was less than 10 bcm," he said.  

Underscoring the fact that no changes have been made to our contract, the official said, “The ‘take or pay’ clause has not been removed from Iran’s contract to export gas to Turkey.”

Turkey receives more than 90% of Iran’s natural gas exports under a long-term contract, which amounts to 30 million cubic meters per day and about 10 billion cubic meters per annum.

Turkish President Recep Tayyip Erdogan was in Tehran on April 9, 2015, to discuss a discount for the gas supplied to Turkey.

"We purchase 90-95% of Iran’s exported natural gas which is the most expensive gas we buy. Should Iran lower the price, we will definitely increase the amount of gas we import from Iran," Erdogan said at a joint press conference in Iran with his Iranian counterpart, Hassan Rouhani.

"We need to get gas at a low cost so that we can provide it to our citizens at a minimal price. The two friendly countries need to show each other solidarity.”

Turkey demanded a 32.5% price cut.

The International Court of Arbitration is the world's leading body for the resolution of international disputes by arbitration.