Spearhead Analysis – 30.04.2018
By Shirin Naseer
Senior Research Analyst, Spearhead Research
Pakistan’s Prime Minister Shahid Khaqan Abbasi joined representatives from Turkmenistan, Afghanistan, and India in Afghanistan’s Herat province this February to inaugurate, at present one of the most extensive energy projects in the region, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.
Following the meeting, Afghan President Ashraf Ghani took to Twitter to say: “A new chapter of economic growth and regional connectivity starts right here in the economic and cultural hub of #Afghanistan.”
PM Abbasi was also joined by Turkmen President Gurbanguly Berdimuhamedov and Indian Minister of State for External Affairs M.J. Akbar. Gen. John Nicholson, commander of US Forces Afghanistan and NATO’s Resolute Support Mission, was also present at the ceremony.
According to reports, the 1,814 kilometer TAPI pipeline is set to supply 33 billion cubic meters (bcm) of gas; Pakistan and India are expected to receive 42 percent each, and Afghanistan will be receiving 16 percent along with millions of dollars each year from transit revenue.
Turkmenistan is the fourth largest producer of natural gas in the world. Work on the Turkmenistan section of the TAPI pipeline took off in December 2015. Of late, Turkmenistan has been making efforts to expand its natural gas exports. Unfortunately, progress has been slow.
Russia halted purchase of Turkmen gas back in 2016. According to Turkmengaz, Turkmenistan’s national gas company, Russian Company Gazprom made the decision to stop importing Turkmen gas due to a “changed situation on the international gas market, as well as individual economic and financial issues that Gazprom Export had.”
Supply to Iran also ceased in 2017 because of a payment dispute. After losing Iran and Russia, China became the only other country purchasing Turkmen gas.
For China, Turkmen gas is carried through three different pipelines passing through Uzbekistan and Kazakhstan. According to reports a fourth pipeline was approved in 2013 which was to deliver 30 bcm of gas to western China. However, China shelved its gas pipeline expansion plans in March 2017 due to a conflict among member countries.
For Turkmenistan’s economy its natural gas exports are a major source of revenue. Hence Russia and Iran’s loss has been significant for its economy, to say the least.
As world leaders got together in Herat to mark the initiation of work on the Afghan portion of the TAPI pipeline, security was also cited as a major concern for TAPI’s expansion in the region.
During the same month, in a rare announcement, the Taliban vowed to support and protect the TAPI project. A Taliban spokesman, Qari Mohammad Yusuf Ahmadi, in an emailed statement, said: “The Islamic Emirate views this project as an important element of the country’s economic infrastructure and believes its proper implementation will benefit the Afghan people. We announce our cooperation in providing security for the project in areas under our control”.
While the Taliban’s statement cannot be taken at face-value, this was still an interesting development.
With an estimated price tag of $10 billion, the success of the TAPI project remains crucial for Turkmenistan and all other member countries, including Pakistan. In recent times a lot of Pakistani textile units have relocated to Bangladesh. During the period 2008 to 2012, 40 percent of Pakistan’s textile sector reportedly shifted to Bangladesh owing to high prices and frequent gas and electricity outages in the country.
The Pakistan Textile Export Association (PTEA) reported the price of gas in Bangladesh as $3 per million British thermal units (mmbtu). In Pakistan however till December 2017 gas was priced at $7.6/mmbtu. Recently PTEA revealed that the government’s decision to provide regasified liquefied natural gas (RLNG) to the textile sector will further raise the price of gas to $11/mmbtu.
However, if TAPI is successfully put in place, Pakistan will in all likelihood be an important consumer of Turkmen gas. A recent paper assessing Pakistan’s overall energy potential revealed that total demand for gas in Pakistan is around 6 billion cubic feet per day (bcfd). Gas production on the other hand is only around 4 bcfd. Production capacity is estimated to fall to less than1 bcfd by the year 2025 as gas reserves deplete; demand nonetheless is expected to rise to 8bcfd.
Considering these estimates, the TAPI project can be of great help in improving Pakistan’s exacerbating energy problem.
At the same time, TAPI may also turn out to be a strategic step towards creating a sustainable Afghanistan. There are mixed reports on the exact amount Afghanistan is to receive in transit fee from TAPI: “The Afghan Voice Agency reported on February 19 that the amount would be “nearly $400 million” annually. Afghanistan’s ToloNews reported on February 20 that “Afghanistan is expected to earn $500 million USD in transit duties annually from the project. Turkmen Foreign Minister Rashid Meredov promised in November that Afghanistan would receive some $1 billion annually in transit fees from TAPI.”
Regardless, what can be said with certainty for now is that TAPI will not only provide transit revenue, but also an opportunity to diversify Afghanistan’s transit routes and secure its economic future. TAPI may also further strengthen India-Afghanistan relations as both countries enhance cooperation under its development. Previously, the Chabahar port project has been one case in point. The Chabahar port provides India access to Afghanistan and Central Asia—which observers in Pakistan find disconcerting. It is also on numerous occasion been accused of competing with Pakistan’s Gwadar port.
Being a landlocked country, Afghanistan has relied on Pak-Afghan agreements like the Afghanistan Transit Trade Agreement (ATTA) and the Afghanistan Pakistan Transit Trade Agreement (APTTA) for international trade. It is precisely this disadvantaged geographic position of Afghanistan that has oft-times been taken advantage of by Pakistan to safeguard its interests in the region.
In this context perhaps the only factor standing in the way of Pakistan wholeheartedly participating in TAPI and benefiting from its full potential is Pakistan’s own foreign policy outlook in relation to the nature of its bilateral relationships with India and Afghanistan, and subsequent regional priorities with respect to its growing suspicion of deepening India-Afghanistan relations.
No doubt, the TAPI gas pipeline will allow Afghanistan access to new regional connectivity projects, such as the Central Asia South Asia (CASA) 1000 electricity transmission line, and the Five Nations Railway Corridor between China, Iran, Afghanistan, Tajikistan, and Kyrgyzstan. The TAP-500 power project agreement signed after the inauguration ceremony of TAPI also ensured 500 kilovolts of energy will now be transmitted from Turkmenistan to Pakistan via Afghanistan. With TAPI’s development, the November 2017 Lapis Lazuli Corridor trade and transport agreement can also be further expanded. The corridor reportedly allows the shortest, most economical, and safest route for Afghanistan’s trade with Europe. It begins in Aqina and Turghundi ports in the Afghan provinces of Faryab and Herat, reaches Turkmenbashsi port in Turkmenistan, passes through the Caspian Sea and heads to Baku in Azerbaijan and the Georgian capital Tbilisi, reaches Poti and Batomi ports on the Black Sea, and lastly crosses through Turkey to Europe. The route involves extensive road, rail, and maritime transport. If the Lapis Lazuli Corridor takes off, it can have serious implications for the global and regional political economy.
More recently, Uzbekistan agreed to participate in the TAPI pipeline. The news came as Turkmen President Gurbanguly Berdimuhamedov paid a visit to Tashkent this month. Uzbekistan reserves most of the natural gas it produces for domestic consumption. However, it does export some to Kazakhstan, Russia, and China. It’s unclear what Uzbek involvement entails; for now, technical assistance seems to be under consideration.
Notwithstanding the numerous setbacks and pessimism voiced internationally on progress, the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline is still on the road to its development. For Pakistan, TAPI other than assisting its growing economy can also provide a good opportunity for the country to diversify beyond China and move towards improved relations with Afghanistan, and perhaps even India. The February meeting seems promising for now. Pakistan must employ creative diplomacy and improve its foreign policy outlook to ensure it is able to benefit from the project fully.