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Tehran Taking Non-Complying Ashgabat to Court

Iran says Turkmengaz cannot unilaterally cut off the gas flow even if Iran has unpaid dues.Iran says Turkmengaz cannot unilaterally cut off the gas flow even if Iran has unpaid dues.

The National Iranian Gas Company released a statement on Wednesday saying that it will appeal to the International Court of Arbitration (ICA) regarding a dispute with Turkmengaz—the national gas company of Turkmenistan, over an arrears row.

NIGC wants to file a formal complaint against the Turkmen company as it unilaterally suspended gas flow to Iran last week, claiming that Iran should settle its roughly $2 billion unpaid dues for gas deliveries from Turkmenistan, IRNA reported.

The statement accuses the Turkmen government of routinely behaving in an un-neighborly manner in its energy deals. Bitterness lingers over what ensued in the cold winter of 2007-2008, when Turkmenistan, according to NIGC,  took advantage of shortages in Iran and jacked up gas prices nine-fold, reportedly to $360 per 1,000 cubic meters from the agreed upon $40. According to Turkmen officials, Iran accumulated the bulk of its debt during that period.

Based on the NIGC statement, the so-called debt dates back to the sanctions era when Iran was not able to do business with most countries due to international banking restrictions. Yet   Iran cleared a big portion of its unpaid due by providing Turkmengaz with goods and engineering services.

Turkmenistan last week cut gas supplies to Iran in a "hasty decision" that was aimed to pressure Tehran to clear its debts for past gas purchases, Iranian officials said last week. Tehran and Ashgabat had reportedly reached a preliminary agreement to settle the payment dispute only a day before the Turkmen company suspended exports.

"Iranian gas officials proposed forming a joint commission to settle the differences but the other side has shown no interest," the NIGC said.

Based on the terms of the contract, Turkmengaz cannot unilaterally cut off the gas flow even if Iran had unpaid dues. Now that the Turkmens have gone ahead and cut off supplies is an indication that Ashgabat cannot be a reliable international business partner, the statement noted.

It added that the legal and financial dispute solely involves the NIGC and Turkmengaz and meddling of the Turkmen Foreign Ministry in the issue is clearly in breach of contractual  terms.

The foreign ministry in Ashgabat released a statement last week saying that the gas supplies to Tehran were cut off because NIGC had not paid its debt to Turkmengaz. The statement did not elaborate on the amount.

 Unraveling of Gas Deal

In late 1997, Turkmenistan and Iran inaugurated a 200-kilometer natural gas pipeline joining the two countries. They called it the Friendship Pipeline. In 2010, the pipeline was supplemented with the opening of another pipeline—Dauletabad-Sarakhs-Khangiran—which runs from the Dauletabad gas field in southeastern Turkmenistan to Iran. The second route had an initial annual capacity of 6 billion cubic meters, almost the same as Friendship.

With Iran now cut off, Turkmenistan seems to be in a vulnerable position. Its only customer now is China, a country with resources and strategic heft that allows it to drive hard bargains. While the amount China pays for its gas imports from Ashgabat is not known, media reports suggest the sum may be very small.

News trickling out of Turkmenistan makes it clear that Ashgabat is struggling to cope with a deepening economic crisis. Thus, the government’s apparent determination to wring money out of Iran may be motivated as much by desperate need as by a contractual grievance.

Even before the dispute with the neighboring state, Tehran had made known its resolve to reduce its dependence on Turkmen gas. Plans are in place to speed up the laying of gas pipelines from the oil and gas-rich fields in the southern regions to the north.

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