Friday, 09 August 2013

Turkmenistan and Afghanistan Sign Agreement Over TAPI Gas Pipeline

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by Tavus Rejepova (the 08/07/2013 issue of the CACI Analyst)

On July 9, the Chairman of Turkmenistan’s State company Turkmengaz and the Chairman of Afghanistan’s Gas Corporation signed a gas sale-purchase agreement (GSPA) on the sidelines of the 17th meeting of the Steering Committee over the construction of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project in Ashgabat.

Key energy officials from TAPI member countries attended meeting and the signing of the Turkmen-Afghan GSPA ceremony, including Wahidullah Shahrani, Afghanistan’s Petroleum and Mines Minister, Jam Kamal Khan, Pakistan’s Petroleum and Natural Resources Minister and Veerappa Moily, India’s Minister of Oil and Natural Gas who were also received by President Gurbanguly Berdimuhamedov during their visit to Turkmenistan. Representatives of the Asian Development Bank (ADB), which is leading the project and helping to seek funding among international financial institutions and oil and gas companies, also took part in the Steering Committee meeting. 

As per the Turkmen-Afghan gas deal, once the TAPI is completed, Afghanistan will purchase 500 million cubic meters of Turkmen gas in the first ten years, and 1 billion and 1.5 billion cubic meters (bcm) in the following second and third decades respectively.

It is not clear whether all four sides have been able to strike a gas price deal yet. Before such a deal is signed, Turkmenistan and Afghanistan operate on a Memorandum of Understanding only. According to estimates by energy experts, Afghanistan will earn about US$ 500 million per year in transit fees through the pipeline. It is expected that the gas exported from Turkmenistan will mainly be used to generate power for homes and industry facilities along the villages in Herat and Kandahar provinces in Afghanistan. Afghan officials claim that ethnic Turkmens and Afghan people living in villages along the pipeline will help protect the pipeline in the future as they will generate electricity directly out of the Turkmen gas.   

As a result of the consultations of the TAPI Steering Committee members in Ashgabat, all participants have agreed to establish a consortium or a Special Purpose Vehicle (SPV) called TAPI Ltd., which is expected to include the national gas companies of the member countries. The sides agreed to prepare the constituent documents to register TAPI Ltd. by the end of 2013. The TAPI members have also agreed to sign an agreement with ADB as the TAPI Transaction Advisor, which is expected to generate over US$ 7.5 billion to finance the project in the near future. Some energy analysts claim that the true cost of the pipeline construction is between US$ 10 and US$ 12 billion.

Turkmenistan’s government maintains that there is no funding problem for the pipeline’s construction. Energy experts claim that it will be next to impossible to implement such a complex project without attracting major international oil and gas companies (IOCs) and that these IOCs are very reluctant to participate unless Turkmenistan agrees to some type of upstream concessions. Turkmen media reported that companies such as Chevron, ExxonMobil, BG Group, BP, Petronas and many other companies are interested and are preparing their individual proposals to the government of Turkmenistan.   

After the signing the Turkmen-Afghan gas deal, Afghanistan, Pakistan and India have now become the official buyers of Turkmen gas. In May 2012, the Pakistani company Inter State Gas System Limited and the Indian company GAIL Limited signed the relevant GSPA agreements with Turkmengaz. As it is currently facing a huge energy deficit, Pakistan needs the Turkmen gas more than any of the other TAPI member countries. Concurrently with TAPI, Pakistan is also planning to import over seven bcm from Iran through the Iran-Pakistan (IP) gas pipeline starting from 2014. At a meeting with President Berdimuhamedov, Pakistan’s Petroleum and Natural Resources Minister and his Indian counterpart particularly discussed the possibilities for speeding up the construction of TAPI. The signing of GSPA with Afghanistan is considered an essential step in this direction.

However, the instability in neighboring Afghanistan still remains an impediment to TAPI’s construction. Afghanistan’s Petroleum and Mines Minister told journalists on July 17 that Afghanistan will ensure the security of the project by deploying 9,000-12,000 police for this purpose. Afghan press reported that Afghanistan will cover all expenses associated with deploying the police. The Taliban insurgent groups fighting in Afghanistan have not yet released any statement on the TAPI project. 735 kilometers the pipeline’s total 1,735 kilometers will cross through the territory of Afghanistan, 200 kilometers through Turkmenistan and 800 kilometers through Pakistan before it reaches the border town of Fazilka in India.

Representatives of the Asian Development Bank say that the project is of crucial economic and political importance to the region. Besides bringing electricity to many Afghan families, the construction of the project is expected to create thousands of jobs along the route. If everything goes as planned by the Steering Committee, the design and construction of the pipeline should be completed within four to five years.

Read 9577 times Last modified on Monday, 12 August 2013

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