Analytical materials / Turkmenistan

Iskandar Qonunov: TAPI Project and its Prospects

11.04.2016

“The TAPI project can also be uneffective, since Turkmenistan is building its part until the border with Afghanistan and waits for the conflict and issues to stop in the next country. Of course, it is good to be optimistic, but the Taliban issue cannot be resolved in a short period, unless and constructive dialogue will be built.  At the moment, the budgeting and financing of the project is still under doubts”, – the benefits and risks in the implementation of TAPI project explains political analyst Iskandar Qonunov, exclusively for CABAR.asia 

IMG_0392After nearly 25 years of discussion, construction of at least the Turkmen section of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline is finally underway. Earlier, in December 2015 in the Turkmen city of Mary, 311 km from the capital Ashgabat, the groundbreaking ceremony for the construction of TAPI gas pipeline took place. The Turkmen President Gurbanguly Berdimuhamedov, Pakistani Prime Minister Nawaz Sharif, Afghan President Ashraf Ghani Ahmadzai and Vice President of India Mohammad Hamid Ansari attended this grand event.

The project is planning to carry natural gas from Turkmenistan’s Galkynysh field to Fazlika (Punjab) province in India. The route of the pipeline is mapped to go through Herat, Kandahar regions of Afghanistan and Quetta, Multan provinces of Pakistan before reaching the border with India. On December 13, Turkmenistan began work on the 214 km division of the pipeline in its territory. Further, the pipeline will travel 773 km in Afghanistan and 827 km in Pakistan before ending at Punjab in India. If successfully completed, the TAPI pipeline is slated to transport 33 billion cubic meters (bcm) of natural gas from massive Galkynysh filed to the neighboring energy-starved regions, offering some energy stability to Afghanistan and Pakistan as well helping to meet Indian economy’s own high-energy demand. TAPI will provide Afghanistan with 14 million standard cubic meters of natural gas a day (mmscmd), while India and Pakistan will each receive 38 mmscmd. In total TAPI will provide 90 mmscmd. (See Table 1 for percentage shares of the sides)

table1

However, the TAPI pipeline has to be financed and the estimated cost of the project is at least $10 billion. In February 2016, the leaders of the four participating states in Istanbul signed the investment agreement of the TAPI pipeline project. As noted in a Reuters article from December, “TAPI’s construction is led by state gas firm TurkmenGas and none of global energy majors have so far committed to the project that will cost as much as a third of Turkmenistan’s total 2016 budget.” [1] TurkmenGas will be the leader of the consortium and shall take 85 percent equity. Along with GAIL India, ISGS of Pakistan and Afghan Gas Enterprise (AGE) will also take 5 percent stake each.  The investment agreement connects to the 5% shareholding of each of the three member countries, also an initial investment of around $200 million. In addition, the Asian Development Bank (ADB) is acting as TAPI’s secretariat and transaction advisor.

The Turkmen government thinks that the pipeline will become operational by December 2019. The government is so confident that decided to share 85% of the entire cost from Turkmenistan’s own resources. It is obviously a huge boost to the project, but as it has been the case for years, the security situation in the transit country Afghanistan remains very difficult.

PROJECT’S ANALYSIS

The TAPI gas pipeline is starting from Turkmenistan, one of the most isolated states of the world, after it goes through politically unstable and insecure Afghanistan and then reaches two countries barely labeled as partners – Pakistan and India. Thus, it is obvious that the project will face numerous obstacles while linking central and south Asia. Nevertheless, when the project succeeds, the outcomes will not only benefit the participating countries’ economic well-being, but also open new prospects for partnership. Afghanistan is in need of secure energy source to increase both its capacity and generate electricity. Pakistan is also having power shortage and needs extra power to meet its energy-demand. The power shortage in Pakistan are due to several factors, including diminution of domestic gas supply and lack of affordable alternative energy source. India, due to its high population and increasing economy, is facing the same problems. TAPI as a regional cooperation project will stimulate economic growth through increased investments and trade, level the participants’ interests and promote regional stability and security. In addition, the increased use of natural gas as electricity generator will reduce the environmental damage as well.

Turkmenistan having the world’s six largest gas reserves has access only to Iranian, Russian and Chinese markets only. For a landlocked country as Turkmenistan, this project will bring numerous advantages among which reducing its dependence on gas sales to its major gas importers, China and Russia. In case of Afghanistan, TAPI project will create jobs for the local population; and perhaps alleviate the political tensions within the country.

The Pakistan government in its tern considers the construction of the TAPI pipeline as an important project, which is indicating the beginning of a new era of cooperation at the regional and international levels. In addition to regional cooperation, China also has large economic interests in both Afghanistan and Pakistan. In particular, the project of China Metallurgical Group Corporation (MMC) in developing large Aynak copper deposit in Logar province. Currently the excavation process and preparatory work are completed. [2] The TAPI gas pipeline project is significant for the ore melting process in the field. This will require the construction of a large smelter, which, in turn, will require fuel. This plant, as well as other industries associated with the processing of ore – steel and refineries could become a major consumer of gas supplied through the gas pipeline TAPI. Therefore, TAPI is considered as one of the conditions for the realization of China’s economic interests in Afghanistan. In addition, there is a high need for both India and Pakistan to find long-term sustainable solutions for their ever-growing energy demand. A shortage of supply, especially for power generation, is slowing these two countries’ economic growth considerably. In South Asia, natural gas is swiftly gaining significance as the key fuel for power generation. Gas-based power generation plants need less expenditures to build than alternatives such as nuclear, hydropower and coal-fired plants. Gas-fired turbines are more versatile and able to respond quickly to peak electricity demand. Gas-based generations are also significantly cheaper than fuel oil or diesel, often used to produce electricity in India and Pakistan. The most effective way to solve the energy shortage in South Asia is based on the building of gas-fired power plants. [3]

The US Deputy Assistant Secretary, Bureau of South and Central Asian Affairs, Daniel Rosenblum, made some positive comments on the TAPI project. “First of all, the U.S. supports the TAPI project because we think it has the potential to be a transformative project for the entire region in terms of energy security for countries and commercial ties. We also believe that the project will only succeed if it is done on a commercially viable basis. Therefore, we have actually encouraged all the parties to the potential TAPI project to bring in an international energy company that can serve as the project leader, the project champion. That’s the way this has worked in the past on similar projects and we think that’s an essential element to make this work.” [4] If the project implemented successfully, it will help to attract more investments to Afghanistan and Pakistan, rise the government budget revenue over transit fees and contribute to the counties’ overall economic well-being.

From the other side, Russia, was also expressing its willingness to participate in the TAPI project at all stages of the development. During the Fifth International Gas Congress in the Caspian Avaza in May 2014, Deputy Prime Minister Arkady Dvorkovich, announced the interest of Russian energy companies to cooperate. However, Russia is not taking any part in the TAPI and might consider the project as a peril to their influence in the Central Asian energy market. Russia now is planning to lay a gas pipeline from Russia to India, through Xinjiang province of China. Moreover, the recent offering of Russia to build a gas pipeline from Iran to Pakistan is also a way to strengthen its position in Pakistan and later construct through Pakistan to tap the Indian market. [5] It seems that, Russia is trying to create as much alternatives as possible, in case TAPI project will fail to operate by 2019.

BUNDLE OF CONTRADICTIONS AND TAPI

Alongside the positive and optimistic expectations from the TAPI pipeline project, there are also number of obstacles that could lead the project into deadlock. As we come to issues and challenges, the most important are security hurdles in Afghanistan and Pakistan, budgeting concerns, clarity in financing part of the project and geopolitical issues. (Table 2)

ENGLISH-1

The security situation has been an issue for years now and obviously, it will be a huge barrier for the TAPI project to be successful. Given Afghanistan’s ongoing security environment, Taliban represents a huge threat to the project’s completion. Security in Northern Afghanistan and particularly along the Turkmen-Afghan border remains unresolved issue. Afghan President Ashraf Ghani has proposed that the country will create and put together 7,000 strong force militants to clear the rout for the pipeline. The Pakistan province Baluchistan is also having security troubles, where most of the Taliban leaders and members are operating. Certainly, Turkmenistan will construct its piece of the pipeline, but there is a long way before Pakistan and India can benefit from Turkmen gas. Moreover, the budgeting and financing part of the $10 billion project is not clear at all.

Since Turkmenistan’s decision to refuse any foreign company to have stake in its gas fields, which resulted all major European and Western energy companies’ losing interest in financing the TAPI project. The government states that these are national resources and the government should be able to control them fully. Furthermore, when and if the project successfully completed the India-Pakistan relations, could also bring issues as well. It is a fact that Indo-Pac relations are complex due to a number of historical and political events. Thus, pipeline through Pakistan could also serve as a political tool against India in case of any tensions between these countries.

CONCLUSION

The Indian market is open and ready to pay for natural gas and Turkmenistan is ready to fill in the pipelines. The pipeline also can bring peace to Afghanistan, improve the Indian-Pakistan relations, increase jobs throughout the whole region, increase the budget of all participating countries and bring in more investments.

However, the security situation is worrisome and the pipeline route goes through one of the insecure parts of Afghanistan, particularly in the South where the Taliban have large degree of control. Afghanistan in its turn will provide 7000-armed soldiers to protect the pipeline route, which means around 10 soldiers in each kilometer of the pipeline. This is showing the Afghanistan’s high interest in the project and displaying the government’s efforts to push the pipeline construction forward. One of the ways out of this situation might be a creation of constructive dialogue between the Afghan government and the Taliban leaders. Since, this project is bringing a huge benefit to the country and can stabilize the economic situation in the country. The local leaders and the Taliban could be involved in the whole process and feel themselves part of something enormous going on in the country. It could even be a benefit sharing of the transit fees among the parties. If the peace negotiations bring any positive changes then the pipeline might be well done. In addition, one thing to remember is that the TAPI negotiations were started back in the 1990s and all the discussions around the project and its future were made with Taliban government of that time. They were interested back in 1990s and surely will be involved now, when the country is in need of grand changes. If the Taliban are interested enough and involved in a project that would benefit the whole country, the pipeline will safely travel the Afghan territory.

Turkmenistan is a gas-rich country and due to being landlocked is forced to construct pipeline in order to expand the number of Turkmen gas. The Central Asian-China pipeline and Turkmenistan-Iran pipeline can be a good example of successful projects, but both missions were financed and managed by host countries. The Trans-Caspian gas pipeline is also a project that would open the European Union gas market to Turkmen gas-reach fields.

The TAPI project can also be considered as waste of money for Ashgabat, since Turkmenistan is building its part until the border with Afghanistan and waits for the conflict and issues to stop in the next country. Of course, it is good to be optimistic, but the Taliban issue cannot be resolved in a short period, unless and constructive dialogue will be built.  At the moment, the budgeting and financing of the project is still under doubts. Earlier, Turkmenistan was dealing with French “Total” and proposed them to be as consortium leader. Surprisingly, Turkmen side stopped the discussions and claimed themselves as a consortium leader. However, this could also mean that Total felt the risk and issues the project is carrying and refused to finance the multi-billion project. It is known that TAPI’s construction is led by the state gas firm TurkmenGas and none of international energy companies have so far committed to the project that will cost as much as a third of Turkmenistan’s total 2016 budget. [5] Now, Turkmenistan should focus on reaching an agreement with international energy giant company in order to solve the financing issues of the project. The only company known to be in talks on TAPI currently is Dubai-based Dragon Oil, which produces oil off Turkmenistan’s Caspian coast. Sharing 85% of the entire cost would mean $8.5 billion, thus seeking for an international company as consortium partner or reaching an agreement with international donor would be the best idea in the current situation.

Recommendations:

  • To organize multilateral negotiations and find a mutually benefit compromise, in order to solve the security issue in Afghanistan.
  • Inking an agreement with the groups of interest in sharing the transit fees, in order to secure the pipeline route.
  • Reach an agreement with international energy company to share the project expenditures and not delaying the process.
  • TurkmenGas can lead the project with the help of international consortium.

The optimistic scenario of the TAPI pipeline project is that, the Afghan government finds a compromise with Taliban leaders and make them part of the project, since at the very beginning the Taliban were the one to have discussion over the possible gas pipeline. Furthermore, TurkmenGas makes and agreement with international energy giant company to share the costs of the project construction. Reaching the above-mentioned points would make the TAPI pipeline project’s future bright and it would start operating as promised, by 2019.

References:

[1] Turkmenistan starts work on gas link to Afghanistan, Pakistan, India. (13.12.2015) http://uk.reuters.com/article/turkmenistan-gas-pipeline-idUKKBN0TW05Q20151213

[2] Copper and Peace: Afghanistan’s China dilemma (11.07.2015)

 https://www.afghanistan-analysts.org/copper-and-peace-afghanistans-china-dilemma/

[3] Another Pipe Dream (25.03.2015)

http://www.naturalgaseurope.com/another-pipe-dream-22882

[4] Remarks at Ashgabat Media Event (05.09.2014)

http://www.state.gov/p/sca/rls/rmks/2014/231328.htm

[5] Gas pipeline to India is being considered (20.12.2015)

https://in.rbth.com/economics/cooperation/2015/12/21/gas-pipeline-to-india-being-considered_553397

[6] Turkmenistan launches $10bn gas pipeline to South Asia (13.12.2015)

http://www.aljazeera.com/news/2015/12/turkmenistan-launches-10bn-gas-pipeline-south-         asia-151213165943882.html

Author: Iskandar Qonunov, political scientist (Kyrgyzstan, Bishkek).

The opinions of the author may not coincide with the position of CABAR.asia

 

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