Home > 2016 > Tapi Gas Pipeline: Hopes And Challenges

Mainstream, VOL LIV No 9 New Delhi February 20, 2016

Tapi Gas Pipeline: Hopes And Challenges

Monday 22 February 2016

by R.G. Gidadhubli

It is indeed a historic event that leaders of Turkmenistan, Afghanistan, Pakistan, and India broke ground on the December 13, 2015 giving a big push to the long awaited TAPI gas pipeline project linking Central Asia and South Asia. This ceremony was held in Turkmenistan’s southern city of Mary in the Karakorum desert which is an important location on this proposed pipeline route. Some basic facts are as follws: the project will be costing about $ 10 billion; the total length of the TAPI pipeline will be 1735 km and the project is estimated to be completed by 2019. In fact the pipeline would start from the Galkynysh gasfield, formally known as the South Yolotan-Osman field, near the town of Yoloten in Turkmenistan’s eastern province of Mary.

There are high hopes and expectations that, when completed, it might significantly ease the energy deficit of India, Pakistan and Afghanistan since the pipeline will carry 33 billion cubic metres of gas per year alongside Afghanistan’s Herat-Kandahar highway, then via Quetta and Multan in Pakistan ending up at Fazilka that is India’s town bordering Pakistan. Hence it is of great relevance that the Vice-President, Moham-mad Hamid Ansari, attended the function. And he was joined by the Pakistan Prime Minister, Nawaz Sharif, apart from the Turkmen President, Gurbanguly Berdymukhammedov, and the Afghan President, Ashraf Ghani.

Secondly, looking back, this project was conceptualised almost two decades ago in the 1990s after the Soviet disintegration when Turkmenistan became sovereign and indepen-dent. India joined the project in 2010. India imports about 80 per cent of its energy needs of which natural gas constitutes about 46 per cent. Hence this project has great relevance for meeting India’s energy needs. Moreover, as this international pipeline reaches India’s territory, it will reduce the import cost. India’s major gas firm, GAIL, will represent India in the project.

Thirdly, there are high hopes and benefits for Turkmenistan as well since energy export by this pipeline will give an additional dimension to enter into the South Asian market and specifically the huge and growing market of India. Moreover, Turkmenistan seems to be rightly considering the desirability of reducing its over-dependence on China, which has become a major importer of natural gas from Central Asia.

It is worth noting that in 2009 the Turk-menistan-China pipeline was undertaken passing through Uzbekistan and Kazakhstan and that has already materialised. There is, however, a difference between this pipeline and TAPI, because the latter passes through a difficult terrain and region which poses security concerns. Moreover, in the Turkmenistan-China pipeline, China actively participated in technical, financial and infrastructural aspects of the pipeline in addition to providing personnel support in the project.

Fourthly, coinciding with this event, Turk-menistan, Afghanistan and Pakistan have entered into an agreement for laying a power transmission line along with the TAPI pipeline route. In a way clubbing these projects might give a major hope and advantage for successful completion of projects.

Challenges

As opined by some Western analysts, there are many challenges facing the TAPI project. Firstly, there are high hopes expressed on this event which might be somewhat misplaced. This is possibly because not even one section of the proposed pipeline has been laid so far, even as the TAPI pipeline consists of four parts passing through four countries.

Secondly, the security issue of the pipeline is important and, as opined by US analyst William Byrd, the situation on the pipeline route in several regions of Afghanistan is highly insecure. Some regions of the pipeline are under the control of the Taliban and in some areas the warlords have great influence. For instance, in 2015 the Taliban and militant groups of the Islamic Movement of Uzbekistan briefly captured villages right on the border with Turkmenistan. Similarly, the pipeline passing through Balochistan in Pakistan is pretty insecure as there have been separatist move-ments prevailing there for many decades. Hence the security arrangement is most essenteal. While it is siginificant that the Afghan President, Ashraf Ghani, has pledged a 7000-strong force to guard the pipeline and its construction, it is being speculated as to whether any measure has already been undertaken in order to involve the Taliban and local power-holders by taking them into confidence including offering economic incentives. In that case it may be asked if the TAPI might help the peace process in the region.

Thirdly, the cost factor of the project is important. As per information at present, Turkmenistan’s state gas company, Turkmengaz, has promised to contribute 85 per cent of the cost of constructing the $ 10-billion pipeline. The rest (of 15 per cent) will be shared equally by the three other partner countries, that is, five per cent each. GAIL will represent so far as India is concerned. But there is every possibility that the cost might go up. In fact the initial cost of the project in 2008 was estimated at $ 7.6 billion and it has increased by nearly 25 per cent already. Hence the possibility of hike in funding of the project could be a reality which will have to be borne by all the stakeholders of the project. In fact some critics question the economic viability of the TAPI for Turkmenistan itself, which will be bearing 85 per cent of the estimated cost of the project, since the total GDP of the country is about $ 45 billion. Under conditions of sharp decline in global energy prices during the last over a year, the Turkmen economy is already facing a major financial crunch being over-dependent on income from energy export-earning petrodollars. Hence it will be a challenge for Turkmenistan to bear the cost of this project.

Fourthly, funding of the project is partly linked to the security issue. In fact it appears that in the initial stage some international companies such as Unocol, Delta, which had showed their interest to participate in the project, withdrew mainly due to security reasons. Hence it is now to be seen how international energy and financial institutions will respond to the TAPI. As per reports, while the French major Total company has withdrawn, there are expectations that the Dubai-based Dragon Oil firm might be interested. Moreover, the issue of production-sharing is important for participation by global energy firms for any investment, which may pose a challenge for the project.

Fifthly, Turkmenistan proposes to export 90 million metric standard cubic metres (mmscd) of gas through the TAPI over 30 years. Hence as far as sharing of oil is concerned, India and Pakistan are expected to get 38 mmscd each annually, while Afghanistan will get 14 mmscd every year. Thus India will have great benefit as and when the TAPI becomes operative. While there seems to be an understanding on this issue at present, much depends upon the intergovernmental agreement on a longterm basis. But consistency and continuity of the agreement between India and Pakistan will be a major challenge to ensure that gas is supplied to India as per the agreement. Hence institutional and legal issues are also involved for India to take the benefit of energy supplies by the TAPI when it becomes operative.

Sixth, at present the price for natural gas is expected to be $ 4 per unit from the TAPI which is almost half of the prevailing price which is an indication that it will be very economical for the three importing countries. But if the overall cost goes up, then the price charged by the TAPI might also go up.

Seventh, as announced by the Turkmen President, the TAPI project will be completed by 2019 which seems over-optimistic. In fact as per reports, Turkmenistan had taken seven years to complete the East-West domestic pipeline, which is half the length of the TAPI, linking the eastern part of the country with the Caspian Sea initiated in 2008. Hence the declaration that the TAPI will be operative by 2019 is highly unrealistic; this is all the more when it involves three foreign countries and the security and geographical conditions are very adverse. Moreover, a mega project like the TAPI needs highly qualified specialists and experts for organisational design and construction of the pipeline. Turkmenistan lacks such expertise.

In lieu of conclusion, it may be stated that the challenges need to be addressed by the leadership of the participating countries to ensure that the vision of the TAPI project will become a reality and strengthen the economic and political ties between Central Asia and South Asia.

Dr R.G. Gidadhubli is a Professor and former Director, Centre for Central Eurasian Studies, University of Mumbai.