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RR RUEHBC RUEHKUK RUEHMOS
DE RUEHDE #0857/01 0510633
ZNY CCCCC ZZH
R 200633Z FEB 06
FM AMCONSUL DUBAI
TO RUEHC/SECSTATE WASHDC 8466
INFO RUEHDE/AMCONSUL DUBAI 1383
RUEHAD/AMEMBASSY ABU DHABI 1295
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHINGTON DC
RUCNIRA/IRAN COLLECTIVE
RHMFISS/DEPT OF ENERGY WASHINGTON DC

C O N F I D E N T I A L SECTION 01 OF 02 DUBAI 000857 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: DECL:  2/15/2016 
TAGS: TC IR PGOV PREL ETRD EPET
SUBJECT: IRANIAN OIL MINISTER TO RENEGOTIATE UAE GAS DEAL 
 
REF: A. A. 05 DUBAI 4987 
     ¶B. REF B. DUBAI 0003 
     ¶C. REF C. DUBAI 0053 
 
DUBAI 00000857  001.2 OF 002 
 
 
CLASSIFIED BY: Jason L. Davis, Consul General, Dubai, UAE. 
REASON: 1.4 (b), (c), (e) 
 
 
 
1.(U) Summary: On January 30, the Director General of Iran's 
State Audit Council, citing corruption, called for the 2001 
natural gas contract with two UAE companies (Sharjah-based 
companies Crescent Petroleum and Dana Gas) to be cancelled, and 
for oil officials responsible for it to be investigated.  Two 
weeks later, Iranian Oil Minister Seyed Kazem Vaziri-Hamaneh 
publicly defended the deal, signed under the last 
administration, but made clear his ministry would in fact be 
renegotiating the terms.  The press is reporting that the gas 
production start-up date has been pushed back from its initial 
November 2005 date because of delays in distribution 
infrastructure on the UAE side. End Summary. 
 
Claims of Corruption 
--------------------- 
 
2.(U) At a January 30 press conference, Mohammad Reza Rahimi, 
Director General of Iran's State Audit Council, called for the 
Majles to revoke the natural gas contract signed in 2001 between 
the National Iranian Oil Company (NIOC) and Sharjah-based 
Crescent Petroleum (CP). CP had already awarded the distribution 
contract to a partly owned subsidiary, Sharjah-based Dana Gas, 
whose IPO was completed last October (ref A).  Rahimi accused 
corrupt NIOC officials of giving unjustifiably favorable pricing 
terms to CP and called for the officials who signed the contract 
to be punished.  Rahimi also accused CP of acting merely as a 
"brokerage company," since it awarded distribution rights to 
Dana Gas.  Claiming CP will earn 4 billion dollars in profits, 
Rahimi called for a government-to-government contract to replace 
the current agreement and eliminate this extra cost. 
 
Ahmadinejad Emboldens His Oil Minister? 
--------------------------------------- 
 
3.(U) Iranian President Ahmadinejad, in what was characterized 
by Iranian IRIB News as a "surprise visit" to the oil ministry 
February 13, met with "senior managers" there for two hours to 
discuss ongoing projects.  He reportedly praised their efforts 
and said they were attempting to improve the country and serve 
the nation.  In a possibly related statement the following day, 
Iranian Oil Minister Seyed Kazem Vaziri-Hamaneh defended the 
signing of the CP contract but implied he would be renegotiating 
it. "The contract was signed during the tenure of (the) former 
oil minister and there was nothing wrong with it at that time, 
because the oil price was low," he told IRIB News. 
 
4.(U) On February 15, Vaziri-Hamaneh criticized the State Audit 
Court for raising public outcry against the Oil Ministry. 
Referring to the CP contract, Vaziri-Hamaneh went beyond his 
earlier statement, making it completely clear that the contract 
was under renegotiation.  He said, "no contract has been 
implemented and no gas has been exported on the basis of the 
draft contract," according to IRIB News.  Vaziri-Hamaneh says 
that new negotiations are taking place to adjust the prices - 
first agreed to in 2001 - to reflect the current market. 
 
Delays in Sharjah 
------------------ 
 
5.(C) A Tehran Times article in late January claimed that in 
addition to the pricing issues, there has been a lack of 
progress on the distribution infrastructure in Sharjah. Because 
of the delays in Sharjah, the gas production start-up date has 
been pushed from November 2005 to later this year.  (As reported 
in late December (ref B), PolEconoffs saw hundreds of sections 
of 48-inch pipe for Dana Gas infrastructure being unloaded from 
ships and onto trailers at the Hamriya Free Zone.)  The Tehran 
Times also claims the Iranian-side has already laid 
147-kilometers of pipeline from its Salman field to the Iranian 
island of Sirri, and another one from Sirri to the Mobarak oil 
field, which Iran shares with the UAE. 
 
Background 
----------- 
 
6.(C) Embassy and Consulate General officials have frequently 
underscored USG opposition to investment in Iran's petroleum 
sector and the troubling nature of CP/Dana Gas' plans to bring 
Iranian gas to the UAE and to create an infrastructure for doing 
so.  We have also warned UAE officials that the "leverage" in 
this gas deal will likely accrue to Iran as the gas supplier and 
 
DUBAI 00000857  002.2 OF 002 
 
 
not to the UAE.  UAE officials have acknowledged the risk, but 
stressed that the UAE needs gas.  UAE Federal officials and Abu 
Dhabi Emirate officials have also noted the complicated nature 
of the UAE, whereby individual emirates control their own 
natural resources.  The October 2005 $561 million IPO for shares 
of Dana Gas was the largest IPO in the UAE, with thousands of 
GCC nationals traveling to the UAE for shares (ref A). 
 
Comment 
------- 
 
7.(C) Iranian President Ahmadinejad has made repeated calls to 
rid NIOC and the Oil Ministry of a purported "oil mafia." Our 
contacts have not had any information on such a group (ref C), 
but that is not to say it does not exist. In any case, it seems 
likely Rahimi's criticism is being used by the government as an 
excuse to renegotiate the CP/Dana Gas contract on terms more 
favorable to Iran (and more in line with current prices). 
DAVIS