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.
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Asian Development Bank.2015. TAPI Shareholders Agreement Initialled. Available here  (accessed 17 November 2015).