TAPI Makes Some Progress

Given its domestic gas shortages India has been looking at supply options via pipelines from Turkmenistan, Iran or Myanmar, without much success or headway.

While the potential projects from Iran and Myanmar remain embroiled in strategic, security or transit issues, there has been some progress in the US$7.6 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) natural gas pipeline.

In a step forward, India and Pakistan agreed last month on a uniform transit fee to transfer natural gas from Turkmenistan. This followed a high level meeting between India’s oil minister Jaipal Reddy and Pakistan energy minister Asim Hussain in New Delhi.

“There can't be one transit fee for India and Afghanistan and another for Pakistan and Afghanistan. It should be the same in-principle,” Reddy said. Hussain re-iterated the view.

A stakeholders meeting is now scheduled in Dubai in this month, to resolve the gas sale purchase agreement (GSPA).

“Since there is a need to expedite the signing of GSPA, both sides agreed to settle the transit fee issue at the earliest,” New Delhi said in a statement, following the Reddy-Hussain meeting. “Pakistan agreed in principle that whatever fee formula is eventually settled between India and Afghanistan would also be acceptable to Pakistan subject to approval of their competent authority.”

Indeed, it is important for the transit fee to be reasonable. To achieve this it is important that the three nations (Pakistan, Afghanistan and India) put up a joint front in discussions with Turkmenistan to ensure that the price of landed gas in India from the proposed pipeline remains below the imported LNG costs. Otherwise the project will not be feasible.

Security aspects in Afghanistan and Pakistan, however, continue to be major stumbling blocks, though both Kabul and Islamabad have repeatedly assured that this will be taken care of.

The turbulent ground situation with the Taliban in Afghanistan, terror cells backed by the Al-Qaeda in Pakistan and insurgency in Baluchistan paints a different picture.

“It is only through development of common economic stakes, we can reduce tensions and suspicions. As time goes by, we are confident about dealing with security issues as the government of Afghanistan and their people are keen on this,” Reddy said.

Indian government officials say that the involvement of American and Russian investors (and by extension some form of security guarantees) is the backing that the project would probably need.

The proposed 1,750-km-long TAPI will run from Turkmenistan's Yoloten Osman gas field to Afghanistan (Heart, Kandahar), Pakistan (Quetta, Multan) to India (Fazilka, Punjab).

Turkmenistan holds the fourth largest gas reserves in the world, including the Yoloten-Osman Gas field with estimated potential 13 trillion cubic meters of gas. A total of 90 million standard cubic metres a day (mscmd) of gas will be supplied via TAPI.

India will receive 38 mscmd, Pakistan an equal amount, while the rest will go to Afghanistan. Last year, Turkmenistan pushed for a final TAPI deal by December with a target to complete the project by 2014.

Given slow progress it does not seem that the pipeline is likely to be completed before 2016, that is, if matters progress smoothly.

TAPI, Not IPI

As TAPI does not involve Iran or USA directly, there is no geopolitical wrangling that bedevils the Iran-Pakistan-India (IPI) gas pipeline project. The IPI pipeline is opposed by America due to Tehran’s independent nuclear program that Washington fears also includes atom bombs.

Though Iran and Pakistan have finalized a deal to build a truncated 1,100 km version of the projected 2600 km IPI gas pipeline, India has opted out of the project. The last trilateral meeting on the IPI pipeline involving the three stake holders was held in July 2007.

Thus, over the last three years India has been closely studying TAPI’s geopolitical, financial and technical aspects. Afghanistan and Pakistan have been seeking India's participation as vital for TAPI’s viability.

The Asian Development Bank is the lead partner of the project, dubbed the ``peace pipeline’’ though the moniker originally belonged to IPI. Both the projects were conceived in the 1990s though it is IPI that has usually been in the spotlight due to the problems between USA and Iran.

TAPI not only provides a southern exit route for land-locked Central Asian gas that will not have to cross Iran or Russia, it is an important cog in Washington's Afghan rehabilitation plan due to substantial transit fees.

Thus, it is no surprise that a broad arrangement has been reached between India and Pakistan on transit fee for TAPI while the IPI remains in limbo over similar issues and the price of gas.

India’s need for gas, meanwhile, continues to mount.

India’s gas demand-supply gap has turned out to be much more than envisaged due to failure of Reliance Industries Limited (RIL) KG-D6 block to meet the gas output envisaged. The gas being produced at KG-DG is lower than half the 80 mmscmd that was predicted.

India's natural gas output is about 120 mmscmd while demand stands about 220 mmscmd and expected to double in five years time. The country imports about 45 mmscmd expensive LNG that still does not take care of the needs.