Pipeline Politics
Weekly Pulse
December 17-23, 2010
The Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline agreement is surely a win-win deal for the four nations. Once completed, the project may go a long way in diversifying Turkmenistan’s quest for exporting vast gas reserves, reducing Afghanistan’s dependence on foreign aid, overcoming Pakistan’s acute energy crisis and sustaining India’s rapid economic growth. However, its proposed completion by 2015 may be hindered by one factor: the continuing insecurity in Afghanistan.

The framework agreement was concluded on December 11 in Ashgabat by the Presidents of Turkmenistan, Afghanistan, Pakistan and India’s Energy Minister. The 1,700-kilometre long pipeline, costing $7.6 billion, will transport approximately 33 billion cubic meters per year of natural gas from the Turkmen gas fields of South Yolotan and Usman, with a maximum estimated capacity of 14 trillion cubic meters of natural gas. It will pass through Afghanistan’s Herat and Kandahar provinces and Pakistani cities of Quetta and Multan, and end in the Indian border city of Fazilka.

15 years ago, when the debut move towards this pipeline deal was made, excluding India, Taliban were in power in parts of Afghanistan, including Kandahar and Herat provinces, which bordered Turkmenistan. Yet, even then, and despite the fact that eventually Taliban had conquered almost 95 per cent of the country, barring a couple of provinces in the north, it was principally the insecurity factor which prevented Turkmenistan-Afghanistan-Pakistan gas pipeline agreement to become viable for implementation.

Today, Afghanistan is not the same as it was during the Taliban rule—isolated internationally, even though behind-the-scene Unocal Corp, a US-based consortium of oil companies, and its Argentinean rival, Bridas Corp, lobbied the Taliban regime for securing its support for the construction of gas pipeline across south-western Afghanistan. The United States and NATO forces, part of the 40-plus nations constituting the United Nation’s International Security Assistance Force, are the guarantors of security in Afghanistan, a responsibility which they intend to hand over to Afghan security forces by 2014, a year before TAPI is scheduled to complete.

More importantly, unlike the shadowy pipeline politics of the Taliban era, the almost decade-long move to realize TAPI is consensual in character, involving the unquestionable desire of all the four signatory regional states to reap the benefits of energy-centric regionalism, a process supported duly by international players involved in the region, including the United States. The project is also supported by global financial institutions such as the Asian Development Bank, which will provide 30 per cent funding for the project.

Turmoil, rooted in religious extremism and terrorism, is nothing new to Afghanistan and the region. The situation was no different in 1995, when the foreign ministers of Turkmenistan, Pakistan and Afghanistan concluded the first memorandum of understanding on the gas pipeline project. What is important to note is the consistency and patience shown by respective governments of the regional countries—with India also joining them two years ago—in pursuing this project, while knowing well a host of uncertainties arising out of recurrent Afghan warfare and its spillover effect. For its part, the United State has also extended wholehearted support to the pipeline deal as a lead international broker, starting from the Clinton Administration, continuing through two administrations of President Bush until the current Obama Administration.

This is principally because the perception, shared equally by regional countries and outside world interested in the project about its potential economic and political benefits. The pipeline project will hugely benefit the economies of the four participating countries and promote intra-regional cooperation and peace.

Take, for instance, Turkmenistan. TAPI would provide the land-locked Central Asian republic with considerable revenue and an alternative route to export its natural gas reserves. Turkmenistan is estimated to posses the world’s fourth largest reserves of natural gas, 7.94 Trillion Cubic Meters, exceeded only by Russia, Iran and Qatar. The country has sought to broaden its client base after Russia sharply cut back its import from the Central Asian nation. A 1,800 kilometer pipeline to China has begun pumping gas since late 2009.

As for Pakistan and India, according to a preliminary breakdown, they would each get about 42 per cent of the 33 billion cubic meters per year of gas, and Afghanistan the remainder. To be precise, Pakistan and India will each receive 1,325 million cubic feet per day of gas, while Afghanistan will receive 500 million cubic feet per day of gas.

For Afghanistan, the project would provide crucial revenue for development and gas for industrial enterprises. As Afghanistan's largest development project, it could generate $160-million a year in transit fees, an amount equivalent to half the government's current revenue. Pakistan currently faces an acute energy crisis, amid fast depleting domestic gas reserves. TAPI, besides the gas pipeline project with Iran, would help overcome this shortfall, while enabling the country to earn transit revenue equaling at least that of Afghanistan, if not more, thereby reducing its traditional economic dependence on external aid.

As to how much India will benefit from the project is clear from the pace of its current economic growth, which cannot be sustained without the availability of greater energy supply in future. Its lack of geographical proximity with Central Asia, unlike China, means the only viable land route for the supply of natural gas from Central Asia, or even Iran, has to pass through Pakistan. India’s gas requirement by 2024 would be 125 billion cubic meters. Of this, 52 billion cubic meters would be available locally and balance 75 billion cubic meters would have to be imported.

TAPI pipeline project is also consistent with the declared US policy of linking Central Asia with South Asia, an approach that conforms to the pressures and demands of globalization and is meant to promote the regionalization or regionalism process as its essential by-product. For the same reason, other great players such as the European Union, Russia and China and their respective commercial interests must also support the project, if not for anything else but for benefitting from the business opportunity that the construction and operation of the pipeline would provide.

That ADP is the main force behind the project, providing bulk of the development funding for it, is also an additional guarantee for TAPI’s financial viability and political viability. As Asia’s largest development institution, ADP got involved in the project in July 2002 when it was asked by the project’s steering committee consisting of oil and gas ministers of Turkmenistan, Afghanistan and Pakistan to prepare a feasibility study. In subsequent years, steering committee meetings were held at frequent intervals. India also participated in its tenth meeting in April 2008 in Islamabad, when a Framework Agreement was concluded by the four participating nations.

It was also during this meeting that details of the said ADB study were outlined. The ADB study called for the pipeline to be built and operated by a consortium of national oil companies from the four countries. A special-purpose financial vehicle would be floated, and international companies would likely join in laying and operating the pipeline. Reportedly, some US and Chinese companies have already shown interest in joining the project.

Until April 2011, the four participating nations will bilaterally negotiate and finalize gas sale-purchase agreements among themselves by April next year. They will also engage the services of a transaction adviser firm that will help in the preparation of marketing documents and for the development of a strategy to attract potential investors to the project, as well as prospecting the lead investor and project developer. Two separate tariffs will be negotiated by recipient countries, one with Turkmenistan and another with the private consortium that will build and operate the pipeline. The ADB estimates that the assignment of developers will take 12 to 18 months to complete.

Of course, the continuing war in Afghanistan and the accompanying insecurity in Pakistan and the region still pose a formidable obstacle to the realization of TAP. This explains why there is an urgent need to find an amicable resolution to the conflict in Afghanistan. With war alone, the future of Afghanistan and the region—and that of economically and politically significant projects such as TAPI—cannot be secured.

Instead of dealing with terrorism only militarily, and suffering from its deadly consequences, Afghanistan and Pakistan deserve to exploit their pivotal status of being a future hub of energy-centric geo-economic activity in the region, which has enormous potential for enriching the regional states and enabling their people in billions to live in perpetual peace. For apart from providing purely economic benefits to signatory states, TAPI will improve relations between South Asia’s arch rivals, India and Pakistan. It will also end unnecessary tension over security issues between Pakistan and Afghanistan, which are uniquely connected to each other through geography, ethnicity and history.