Saturday, December 18, 2010

PIPEDREAMS ABOUT PIPELINES

By

SUSHANT SAREEN

    The superlatives being attributed to the signing of the Inter-Government Agreement (IGA) and the Gas Pipeline Framework Agreement (GPFA) for the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline appear rather farfetched especially when seen in light of the obstacles that stand in the way of implementing this mega-project. On paper, the benefits of the TAPI pipeline are undeniable for all the countries that fall in the route of the pipeline. But political and strategic considerations on the one hand and economic factors like gas price, transportation, taxation and transit fees, security of supply etc. on the other hand are together unlikely to let this project ever become a reality. Unless these obstacles are removed, the fate of the TAPI pipeline proposal won't be very different from that of the much vaunted Iran-Pakistan-India (IPI) pipeline.

    Unlike the IPI project, the TAPI has certain advantages. For one, there is no opposition to it from the US and its allies. If anything, the West has been pushing for the project as an alternative to the IPI pipeline, more so in the wake of 9/11 after the US forces entered Afghanistan. But even during the Taliban era, the US oil major UNOCAL was pitching for the Turkmen pipeline project and was involved in a rather murky competition with an Argentine company Bridas for the pipeline contract. After the Taliban regime was toppled, the project was once again revived when in 2002 an IGA and GPFA were signed between Turkmenistan, Afghanistan and Pakistan to build what was then known as the TAP pipeline. But soon it became clear that the pipeline would not be economically viable without including India in it.

To rope in India, the Asian Development Bank was brought in. For India the project held both economic advantage (cheap and abundant energy supply which would bridge the future gas demand and supply gap in India) as well as diplomatic benefit (a symbol of regional cooperation, an affirmation of India's commitment to rebuilding of Afghanistan and as a means to become an important player in the energy sector in Central Asian states). With the West supporting the project, finding the funding the project and the companies for implementing it will be a cakewalk, something that is not the case with the IPI where international companies and financial institutions would risk US sanctions by dealing with Iran. But these positives are far outweighed by the negative factors associated with the project that could prevent it from getting off the ground.

    Although India has signed the new IGA and GPFA, there are a large number of critical issues that will need to be sorted out before India signs the all important Gas Sale and Purchase Agreement (GSPA) which will decide the techno-economic issues like route of pipeline, price of gas, security of supply, fixing liability in the event of disruption of supply etc. So far the only issue that has been resolved is that of the availability of gas in the South Yoloten-Osman gasfield which has replaced the Daulatabad gasfield that had been earmarked in 2002 and on which there were serious questions being raised over the size of gas reserves. But without complete satisfaction on all the other issues outlined above, which will involve torturously long and detailed negotiations that can take a year or more, the work on the pipeline project cannot start.

Under the GPFA that India has signed, India will be buying the gas on the Turkmen border and then handing it over to the consortium to transport it to the Indian border where it will take the delivery of the gas. This is a totally untenable proposition unless accompanied by iron-cast guarantees on safe passage of gas and provisions for compensation to India in the event of disruption of supply. There will also be issues regarding the fixation of transit fees and transportation costs that will be charged by Afghanistan and Pakistan which will need to be thrashed out before the pipeline is constructed and the gas starts flowing. If the IPI is anything to go by, where the Pakistanis asked for ridiculously high transit fees from India, then India could easily lose interest in the TAPI project.

    Even if the techno-economic issues are sorted out and adequate safeguards are built into the GSPA to India's satisfaction, there are very major political and strategic challenges that will have to be surmounted for the TAPI pipeline to see the light of the day. While the Americans are backing the project and see it not only as an important component in rebuilding Afghanistan but also for strengthening their hold over the Central Asian energy sector which is currently dominated by the Russians and which is being keenly eyed by the Chinese, their timing has gone horribly wrong. Perhaps if the project had been implemented in 2003-04 when the Islamist terrorism in Afpak region was in retreat, it would have served as a monument to a new Afghanistan. But since that time, the security situation has regressed enormously with the resurgence of the Taliban / Al Qaeda terrorists. What makes the pipeline project appears even more undoable is the fact that the proposed route of the pipeline will run through the Taliban heartland of South Afghanistan.

    The project will also have to contend with withdrawal of at least the bulk of the NATO forces from Afghanistan by 2014. With the construction of the pipeline not likely to start before 2012-13, by which time the drawdown of NATO troops would have commenced, a huge shadow of uncertainty hangs over the entire project. With the security situation expected to deteriorate, it would almost certainly militate against the construction of the pipeline. Of course, the incumbent Afghan government has been promising adequate security to the pipeline and has pledged to dedicate around 7000-8000 troops to guard the pipeline. But to rely on the assurances of a government whose writ doesn't even run in Kabul for providing security to the pipeline would be quite foolhardy. The only way for the pipeline to come up would be if it gets security guarantees from the Taliban. But would India like to be part of a project that becomes a milch cow for the Islamist terror groups?

    It would be equally reckless on India's part to depend on a hostile and increasingly unstable Pakistan to provide security to the pipeline or even to live up to its commitment to prevent any disruption in supplies. In this context, it may be recalled that in attempting to convince India to join the IPI project in the mid 1990s the then Pakistani president told the Indian High Commissioner that even in event of a war between India and Pakistan the disruption of supplies would not be for more than a couple of weeks because that is how long the two countries could fight!

The proponents and supporters of the TAPI project also make the argument that the international binding agreements that will govern the pipeline project will force Pakistan to ensure gas supply to India. But a compelling counter argument is that these international agreements will not be worth the paper they are written on if Pakistan implodes or descends into chaos and anarchy or comes under the sway of jihadist forces, as increasingly appears likely. Even if such a drastic fate was not to befall Pakistan, it will be of little comfort to India. Given the flagrant violation by Pakistan of all international agreements, treaties and conventions against export of terror to its neighbours and rest of the world, and its audacious support, sustenance and sanctuary to Islamist terror groups in defiance of the international pressure, who can guarantee that Pakistan will honour international commitments and obligations on uninterrupted gas supply to India?

Asides of Pakistan's natural proclivity for thumbing its nose at international norms of behaviour, there is also a possibility that Pakistan might use the gas line as a lever against India to prevent the hydropower projects being constructed in the Indian state of Jammu and Kashmir. And if Pakistan does resort to such disruptions, the costs in terms of loss of production of units that depend on the Turkmen gas would balance out any benefit that India hopes to derive from the project.

It is not as if all these factors have not been taken into account by the Indian government. But if despite these factors India has joined the TAPI pipeline then it is because, for now at least, India is 'stringing along' the other countries involved in the TAPI project. The objective is to not to be excluded out if the pipeline ever gets built. At the same time, India is neither pinning any hopes nor planning its growth strategy on the gas that may or may not flow through the TAPI pipeline. In other words, there are no pipedreams in India about the pipelines.

*********************************************************************

    <1480 Words>                     16th December, 2010

*********************************************************************

2 Comments:

Blogger Amit Agarwal said...

Sushant,

Might you know the factors which are preventing the vigorous pursuit of an under-sea pipeline that passes through Iran?

Second, any suggestions on a paper that compares the economic costs of an over-land and under-sea pipeline and of transport via LNG tankers?

Finally, within the constitutional framework on center-state relationship, can Gujarat unilaterally, without active participation of the the Union government decide which mode of transport it wants for imported O&G, build infrastructure for receiving it and sign the necessary agreements with respective foreign governments?

Thanks.

AA

2:58 AM  
Anonymous Frances said...

Both parties must arrive to a consensus when dealing with a party wall agreement or other kinds of agreements for that matter.

8:37 PM  

Post a Comment

Subscribe to Post Comments [Atom]

<< Home