Stalled pipeline now a matter of urgency for Turkmenistan
Country's economic future hinges on making 22-year-old multi-billion dollar project a success, but significant obstacles lie in wait
May 11, 2017 1:36 PM (UTC+8)
Turkmenistan is in a hurry to power through with a multi-billion dollar pipeline project to bring new markets for its surplus gas after losing key buyers.
First envisaged in 1995, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project has become something of a saga. Several times it has looked to be for the scrapheap, only to be revived.
The venture was originally planned to funnel 33 billion cubic meters (bcm) of gas per day through 1680km of pipeline running from Turkmenistan through Afghanistan and Pakistan, right up to the Indian border to meet demand from energy-deficient South Asian countries. Initially, it had backing from the US oil giant Unocal and the Saudi oil company Delta. In 1996, they formed a consortium – Central Asia Gas Pipeline Limited (CentGas) – with Turkmenistan.
Unocal later backed out, however, and the pipeline project went into a tailspin following the al-Qaeda-orchestrated attacks on the American embassies in Tanzania and Kenya in 1998.
The venture was put on hold for well over 20 years until mid-2015, when a meeting of the TAPI steering committee revived plans. At the end of that year, parties assembled for a ground-breaking ceremony in the outskirts of the Turkmen city, Mary.
Afghan President Ashraf Ghani termed it an historic occasion, “because it will create the conditions for good neighborly relations among all of us.” Indian Vice-President Hamid Ansari commented that “an economically integrated South and Central Asia is an idea whose time has come,” and Pakistan’s Prime Minister, Nawaz Sharif, said “Pakistan is pursuing a policy of strong cooperation with regional countries, especially with next door neighbors, for prosperity and enhanced connectivity.”
The hope for “good neighborly relations” shattered, however, when India’s Prime Minister Narendra Modi announced last year that cross-border water flows to Pakistan would be choked, remarking belligerently that “blood and water can’t flow together.” Recent bloody border skirmishes between Afghanistan and Pakistan have further queered the pitch. Once again, the future of TAPI looks imperiled.
Regardless, Turkmenistan began a front-end-engineering-and-design (FEED) survey for the pipeline in March. Is Ashgabat flogging a dead horse?
Turkmenistan needs buyers for its gas to revive falling revenues. The virtually landlocked country (its only coastline is on the enclosed Caspian Sea) is entirely dependent on hydrocarbon exports but it has been losing customers. Russia canceled a major contract at the start of 2016, and Iran suspended imports early this year. To compound matters, China – which now accounts for 75% of Turkmen gas sales – recently canceled plans for another pipeline that would carry an additional 35 bcm per year, and has instead secured an additional delivery of 38 bcm from Russia. These developments underscore the urgency of implementing TAPI for the Turkmen economy.
The project is fraught, however, with risks. Foremost among these is Turkmenistan’s ability to meet the capital costs of the project. It has undertaken to meet 85% of the costs, with the rest coming from GAIL India, ISGS of Pakistan, and Afghan Gas Enterprise (AGE).
“Many parts of Afghanistan have become completely inaccessible, so how can you expect to deploy capital, labor, and machinery for an extended period of time?”
Energy experts are skeptical about Turkmenistan’s capacity to honor its commitment, which amounts to US$8.5 billion, or 17.7% of its GDP. Further delays will only drive the costs up further. In 2005, the Asian Development Bank (ADB) – a “development partner” – estimated the project would run to US$7.6 billion; already that has increased to US$10billion.
International firms have shied away from heading the TAPI consortium. In 2015, the steering committee designated Turkmengaz – a Turkmen state company – as chairman. French giant Total SA had earlier showed an interest but later backed off after Turkmenistan refused to give them a stake in the gas field. The project badly needs an financially sound, international player to take the reins.
Security is another issue on which the success of TAPI will hinge. Helmand province in Afghanistan and Balochistan, in Pakistan, are sensitive areas that could make or break the project. The Pakistani army, and Afghan’s President Ghani have promised to deploy forces to guard the pipeline but risks still exist. As Michael Kugelman, Senior Progam Associate at the Woodrow Wilson International Center, commented last year: “Many parts of Afghanistan have become completely inaccessible, so how can you expect to deploy capital, labor, and machinery for an extended period of time?”