The Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline project was first conceived in October 1997 by Central Asia Gas Pipeline Limited (CentGas). Almost 18 years later, the pipeline—often dubbed as the “on/off pipeline,” the “pipeline dream,” and the “peace pipeline”—although still on the drawing board is inching closer to reality.
By Kapil Narula
The
Turkmenistan–Afghanistan–Pakistan–India (TAPI) gas pipeline project was first
conceived in October 1997 by Central Asia Gas Pipeline Limited (CentGas).
Almost 18 years later, the pipeline—often dubbed as the “on/off pipeline,” the
“pipeline dream,” and the “peace pipeline”—although still on the drawing board
is inching closer to reality.
The proposed
56 inch, 1,735 kilometer (km) long pipeline is likely to supply natural gas
from the Galkynysh /Dauletabad field to the energy hungry economies of India and
Pakistan and is estimated to cost around $10 billion. The TAPI pipeline is
expected to carry 90 million metric standard cubic meters of natural gas per
day (mmscmd) over the next 30 years, of which 38 mmscmd will be delivered to
each Pakistan and India, with the remainder going to Afghanistan. The pipeline
will run 200 km through Turkmenistan, 735 km in Afghanistan via Herat and
Kandahar, and 800 km in Pakistan via Quetta and Multan to supply gas at Fazilka
on the border with India.
Although the
intergovernmental agreement (IGA), the gas pipeline framework agreement (GPFA),
and the gas sale and purchase agreement (GSPA) were signed during 2010–2013,
the TAPI pipeline has been a non-starter till date due to multiple challenges.
These include security concerns in the Taliban controlled territory in
Afghanistan, geopolitical rivalries between India and Pakistan, and a lack of
interest from multinational oil and gas companies due to limited profit sharing
opportunities. Major energy corporations including Chevron (United States) and
Total SA (France), toyed with the idea of building the pipeline, but the
efforts did not yield any concrete results as domestic laws in Turkmenistan did
not allow foreign ownership of gas fields. With talks deadlocked there was little
headway made until last year when the project was resuscitated in the face of
changing geopolitical realities.
The push and
the shove
After the
signing of the Transaction Advisory Services Agreement (TASA) in November 2013,
the Asian Development Bank (ADB) was appointed as the transaction advisor for
the TAPI pipeline to update the pre-feasibility study, establish the pipeline
consortium, and to identify and assist the parties in the selection of the
consortium leader.
The project
was also pushed by India’s Prime Minister Modi during his visit to Central Asia
in July 2015 where he emphasized India’s “Connect Central Asia” policy and was
supported by the leadership in other countries. In the wake of the
non-commitment of multinational oil and gas majors to the project, the four
countries decided to bring in their national oil companies (NOCs) (GAIL, India;
Interstate Gas System, Pakistan; Afghan Gas Enterprise, Afghanistan; and
TurkmenGaz, Turkmenistan), to form a joint venture named TAPI Pipeline Company Limited.
In the 22nd steering committee meeting of TAPI held at Ashgabat from 6–8 August
2015, it was announced that with a 51% shareholding, TurkmenGaz would be the
consortium leader and the other NOCs would hold equal shares of the remaining
49%. However, limited financial resources and the lack of experience in
building and operating cross-country pipelines with NOCs led to a lack of
confidence in the arrangement.
It’s all about
economics
While security
concerns are legitimate, it all boils down to economics as the risk from
financing the pipeline can be offset against a higher return on investment. Oil
and gas projects typically have a high credit risk, which is recovered by the
multinational companies by owning an equity stake in the field. As the
Turkmenistan government was unwilling to dilute its share in the gas field, the
cash rich and experienced energy players are shying away from assuming the risk
for construction and operation of the pipeline.
With a typical
30:70 ratio for equity and debt, the equity part of the project cost comes to
$3 billion. After the formation of TAPI Pipeline Company Limited, the question
of the remaining 49% of the balance equity was still vexing as GAIL, the Indian
partner, was only willing to own a maximum of 10% of the joint venture. While
ADB was a natural choice to fund the debt component of the project, limited
financial resources and non-commitment of the NOCs to fund the pipeline led to
the revival of the search for a private partner.
Due financial
diligence by India in the face of changing international pricing of energy is
also holding back the project. With the new domestic natural gas pricing
guidelines, the current price of natural gas in India has fallen from $5.05
(November 2014–March 2015) to $3.82 (October 2015–March 2016). Therefore the
price of gas from Turkmenistan, agreed at $10–$12/mmbtu in 2012, looks fairly
steep. The Indian government is therefore planning to reopen price negotiations
to obtain the best possible deal.
Turkmenistan
on the other hand is desperate to find buyers for its gas. After Gazprom
(Russian Federation) drastically cut down its gas offtake at the beginning of
2015, the PRC is the sole importer of gas from the landlocked country, giving
it excessive leverage over Turkmenistan’s gas exports. Turkmenistan also feels
threatened by the alternative Iran–Pakistan–India pipeline, which may be more
viable following the lifting of sanctions on Iran as it would bypass the security
threats in Afghanistan and may be technically and financially more feasible.
Thus, Turkmenistan may be running out of options and is willing to make key
concessions to push the TAPI pipeline.
A case of
regional energy integration
The TAPI
pipeline is a perfect example of regional energy integration. The project
unites the resources rich Central Asia region with energy demand centers in
northern India and Pakistan. India, which had an estimated gas deficit of 41%
in 2012–2013, has no intercountry gas pipelines and relies only on domestic
sources of gas and imported LNG. India’s gas demand is projected to grow to 746
mmscmd by 2029–2030 and in the face of declining production from the KG D6 gas
fields, India needs to find alternate and cheap sources of natural gas to
fulfill its ambitious economic development and clean energy agenda. Pakistan
also faces chronic energy shortages (peak demand power shortage of about 5,000
MW) and has a natural gas shortage of about 1,200 mmcfd.
The pipeline
therefore goes beyond traditional rivalries between countries and places
economic development and energy security above geopolitics. With governments
pushing the agenda and with the involvement of private players, NOCs, and
regional development agencies, the pipeline is seen as a win-win-win for
suppliers, consumers, and financers.
The project is
also supported by the United States, which sees the pipeline as a part of the
“New Silk Road Initiative,” which aims to integrate the region and boost its
potential as a transit area between Europe and East Asia. The pipeline is also
likely to spur investment in further rail and road connectivity, encourage
people-to-people exchanges, enhance regional trade and economic partnerships in
the region, and permanently alter the pattern of Central Asian connectivity
with South Asia.
Moving closer
to the dream
The jinx seems
to have broken in the 23rd steering committee meeting of the TAPI held on 24
October at Ashgabat, where the parties agreed to the following shareholding
percentages in the TAPI Pipeline Company Limited: TurkmenGaz, 85%; Afghan Gas
Enterprise, 5%; Inter State Gas Systems Limited, 5%; and GAIL 5%. The
shareholders’ agreement, which includes the rights and obligations of the
shareholders and legal issues of ownership and transfer of shares, was also
signed at the meeting.
Reports
suggest that a deal between Turkmenistan and Total SA may be in the offing in
the form of a modified technical services contract, which would allow a
sufficient profit share to the company in exchange for its services. A proposal
to give Total SA the right of first refusal over the gas extracted from the
field is also being considered as this arrangement would allow the government
to retain ownership of the land while ensuring sufficiently high returns from
the sale of gas to Total SA.
The
Turkmenistan side of construction of the pipeline has been ordered and the
groundbreaking ceremony is likely to be held on 25 December. The accelerated
timeline for completion of the project would further ensure that the pipeline
sees the light of the day within 3 years from the start of the construction as
reports indicate that the detailed design and route survey for a part of the
pipeline has already been completed.
The leadership
role of ADB in facilitating the deal is praiseworthy and reconfirms ADB’s goal
of inclusive economic growth, environmentally sustainable growth, and regional
integration.
The TAPI
project will go a long way in ensuring regional economic development and is a
perfect example of energy integration. While the involved parties are naturally
inclined to protect their self-interests, a win-win-win attitude would enable a
quicker, cheaper, and foolproof closure of the project. What remains to be seen
is how politics, diplomacy, and economics combine to transform the TAPI
pipeline from dreams to reality.
About the
Author
Kapil Narula
is a serving officer in the Indian Navy and is currently a research fellow at
the National Maritime Foundation, New Delhi. He is an interdisciplinary
researcher and is awaiting the defense of his PhD dissertation, entitled
“Sustainable Energy Security for India,” in the field of development economics.
Publication Details:
This article
was first published in Asia Pathways, the blog of the Asian Development Bank Institute
under a Creative Commons Attribution-ShareAlike 3.0 Unported
License.
References:
Inter State
Gas Systems Limited. 2015. Turkmenistan–Afghanistan–Pakistan–India Gas Pipeline
(TAPI). Available here (accessed 15 November 2015).
Petroleum
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Industry Group
for Petroleum and Natural Gas Regulatory Board. “Vision 2030” – Natural Gas
Infrastructure in India. Re [online] Available here.
Malik, F.
A. 2015. Energy Crisis of Pakistan.
Available here (accessed 17 November 2015).
Asian
Development Bank.2015. TAPI Shareholders Agreement Initialled. Available here
(accessed 17 November 2015).
