FRAMEWORK AGREEMENT ON TAPI GAS PIPELINE PROJECT

SYED FAZL-E-HAIDER
May 12 - 18, 2008

Last month, Turkmenistan, Afghanistan, Pakistan and India agreed on a framework for executing the over US$7 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project. Asian Development Bank (ADB) had convened the meeting of Petroleum ministers of the four countries in Islamabad to discuss the TAPI gas pipeline project. The four countries agreed that the project was feasible and viable but accepted that the volatility of the region curtails their ability to go faster in this regard.

The framework deals with contractual obligations of the parties in pipeline construction, security, gas tariff and uninterrupted gas flows over the 30-year lifespan of the project.

The TAPI pipeline will stretch about 2000kms from Turkmenistan's south-eastern Daulatabad field to Indian city of Bikaner via Afghanistan and Pakistan and it will meet gas requirements in recipient countries. Under the deal, a consortium will be formed to finance the project and matters relating to the tariffs. The 56-inch diameter pipeline needs at least 30 billion cubic meters (BCM) of gas per year from Turkmenistan to reach Pakistan via Afghanistan. Pakistan would import from Turkmenistan 3.2 billion cubic feet gas per day, which would be shared by both Pakistan and India. The gas quantities involved would be reflected in the draft gas sales and purchase agreements (GSPA) to be prepared by Pakistan. The framework agreement is likely to trigger a host of activities and agreements between and among the four nations and the ADB.

With the participation of India the Turkmenistan-Afghanistan-Pakistan (TAP) pipeline project has now become TAPI project. Earlier India had the status of observer, but it attended the meeting of steering committee on TAPI gas pipeline project on Thursday as the fourth stakeholder. The ADB had concluded through a feasibility study that the inclusion of India would be of great benefit not only for the project but all stakeholders. According to the plan, the pipeline that is to originate from Turkmenistan's Daulatabad gas field will run 145km in the host country, 735km in Afghanistan and 555km in Pakistan to Multan under the preferred southern route i.e., via Herat and Kandahar. The ADB was working on a northern route on an Indian request that should pass through Mazar-i-Sharif, Kabul and Peshawar to Lahore for onward extension to the Indian city of Bikaner. The ADB had originally funded the feasibility study for the project in 2004 and since then it has been updating it.

The proposed TAPI project is confronted with various challenges. The most serious challenge has been on the security front. The worsening security situation in Afghanistan and volatile relations between Pakistan and India have so far been the major hurdle in materializing any project for importing gas reserves of central Asia to South Asia. Technical experts of Pakistan and India have already discussed and finalized the bilateral issues related to tariff and transit fee during their talks held in Islamabad from April 16 to 18 paving the way for ministerial-level talks on the TAPI pipeline project.

Last April, the ADB had furnished a final draft of the inter-governmental agreement to the four nations in along with some modifications that were required to allow inclusion of India in the project. The original inter-governmental agreement was prepared without making India a part of the project and hence an amended draft was required following the decision of the Indian cabinet to join the project.

As per claim of Turkmenistan, its Dauletabad fields have gas reserves of 159 trillion cubic feet and it has presented certification about its gas reserves. Some sources claim that Turkmenistan's reserves in Daulatabad are more than needed for Pakistan and India and the volume is enough at least for 20 years. Exploitation and marketing of these resources depend upon the delineation of maritime boundaries of the Caspian Sea and the determination and security of routes for pipelines from the landlocked Central Asian and Caucasian countries to South Asia.

TAPI pipeline project is subject to the improvement of security situation in Afghanistan. The Argentine oil company Bridas was the first to win exploration rights to Turkmen gas fields in 1992. Bridas made a plan for transporting the gas to Pakistan and eventually to India. The plan could not be materialized, as a bloody civil war erupted in Afghanistan. By 1995, Taliban rose to power in Afghanistan. Later on, a consortium led by the U.S. oil company Unocal and the Saudi Arabian company Delta Oil joined the pipeline scene and won over the favors of Turkmenistan. Unocal withdrew from the pipeline project because of strong pressure from human rights groups who were against Taliban's policies on women. Negotiations for this project continued till July 2001 with the Taliban. The Unocal had been active to lead efforts for building the trans-Afghan link for opening up the Central Asia's gas reserves to the wider world. It however could not implement its plans when US struck Al-Qaeda training camps inside Afghanistan with cruise missiles in 1998.

The Unocal was assigned great task in the beginning of 1990s after the withdrawal of Soviet troops from Afghanistan. Some analysts consider the Unocal a key player behind masterminding rise and fall of Taliban and a lot of other important developments in Afghanistan political scene. The name of the game has been "cornering the Caspian wealth" through a safer, shorter, and easier route from Central Asia to the world markets.

The US had even tolerated Pakistan's Taliban policy for Unocal's project.

Turkmenistan currently ships the bulk of its gas exports to Ukraine via a pipeline controlled by Russian gas giant Gazprom. Petroleum minister of Turkmenistan has however denied that Russian oil and gas giant Gazprom has been given exclusive rights to export its gas to Europe. It is however a fact that, Moscow and Gazprom have been active to create and lead a Eurasian gas cartel. That is why Moscow wants Turkmenistan's gas to be firmly under its control. Russia has done everything it could to frustrate the TAP pipeline project. Gazprom is said to have helped to facilitate an abortive coup against President Niyazov (who has been very active to make TAP project a reality) in 2002.

It was Gazprom that first proposed the project to build an underwater gas pipeline from Iran to India in 1997. Under the proposal a gas pipeline would pass on land in Iran and India and underwater in its Pakistani section. The project was initially rejected as too costly. Gazprom, in 2002, again proposed that its recent experience in building the "Blue Stream'' underwater gas pipeline across the Black Sea to Turkey, would enable it to lower the cost of building the Iran-Pakistan-India pipeline to $ 3.2 billion. This was almost $ 1 billion less than the cost of building an on land pipeline from Iran to Pakistan via Afghanistan. Gazprom considered its project as the safest, as it would bypass the territory of Afghanistan and Pakistan. It was of the view that a pipeline laid in Pakistan's territorial waters at the depth of up to 2 km would be fairly well protected against terrorist attacks. It actually wanted to solve the geopolitical problem so that gas transportation from the huge South Pars fields in Iran to India could be started and Turkish market would continue to rely on Gazprom. In other words, it was another Russian effort to frustrate TAPI pipeline project.