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The South Asia Channel A Pipeline to South Asia Prosperity

Disclaimer: This article was first published elsewhere and is republished here with recommendation and full permission of the author.

By: Mohsin Amin

A proposed plan for a new natural gas pipeline could be an economic boon for Afghanistan. But Kabul must implement real pathways for it to succeed.

In 2015, the Turkmenistan–Afghanistan–Pakistan–India natural gas pipeline (TAPI) shifted from theoretical concept to pragmatic initiative. That progress was due to three major breakthroughs: an agreement on the TAPI holding company’s share structure, the selection of a leader for the consortium, and the groundbreaking ceremony. The ceremony, held in Mary, Turkmenistan on Dec. 13, delivered a strong message to the skeptics. Yet others saw TAPI as only a minor item on the agenda during conferences and academic discussions. However, these recent actions have catapulted TAPI to South Asia’s center stage, as it becomes clear that the pipeline could develop into a major, much needed source of energy and stability for Afghanistan and the region.

TAPI, a 1,078-mile long pipeline, would transport 33 billion cubic meters (1 billion cubic meters, or BCMs, = 35.3 billion cubic feet) of natural gas from Turkmenistan’s gigantic Galkynysh field – the second largest gas field in the world – to Afghanistan, Pakistan, and India. TAPI will provide Afghanistan with 0.5–1.5 BCMs per year over the next 30 years, while India and Pakistan will each receive 14–16 BCMs per year.

 Afghans in Kabul, Nangarhar, Kandahar, and Herat certainly greeted it as such, spilling into the streets to celebrate the pipeline’s groundbreaking. President Ashraf Ghani’s vision of Afghanistan resuming its ancient role as one of Asia’s key trade routes is closer to becoming a reality. The public also broadly supports the project. They believe that projects like TAPI will remove the economic shackles that have limited Afghanistan during the last 40 years of conflict. The widespread support from pro- and anti-government groups alike signaled that the security concerns linked to the construction of TAPI, which many once believed to be major impediments, are manageable. During President Ghani’s recent visit to Kandahar on Feb. 3, the province’s elders vowed to protect the TAPI pipeline by all means necessary.

Afghanistan would benefit tremendously from TAPI, and the $400 million in annual transit fees is not the only upside. Apart from serving as a reliable source of cheap green energy to support the country’s economic growth, Afghanistan’s Ministry of Mines and Petroleum (MoMP) estimates that TAPI will contribute considerably to Afghanistan’s GDP, and provide jobs to at least 25,000 Afghans. This will control the growing unemployment rate that has led young Afghans to pursue job prospects in Europe. TAPI will also provide Afghanistan with key allies who will work to support Afghanistan’s security and political stability, as the pipeline — a large portion of which runs through Afghanistan — is a valuable asset that the three other participating countries will want to maintain.

To utilize TAPI’s gas in Afghanistan, three electricity-generating Independent Power Producers (IPPs) with 100 MW capacities could be built in Helmand, Herat, and Kandahar. Construction of three IPPs could proceed through a public-private partnership (PPP) model involving the government and private sector. This design was used for IPPs in Sheberghan (200 MW), the capital city of Jowzjan province in northwest Afghanistan, and Mazar (50 MW), the capital of Balkh province also in northwest Afghanistan. However, both have yet to be built, and only the Mazar IPP attracted an investor — with help from the World Bank’s International Finance Corporation — to proceed with financing.

Building these three IPPs for TAPI would address the energy needs in Kandahar, Helmand, Nimruz, Uruzgan, Farah, and Herat. Over 90 small-to-medium size factories are inactive in Kandahar because of power shortages. Power rationing is currently enforced because the national power utility cannot meet the existing electricity demand in Kandahar. From 2008 to early 2015, the U.S. government spent $100 million per year to provide electricity in Kandahar from temporary high-cost diesel generation. Now, with its plan to cut off the diesel supply, the power scarcity will get worse.

In Helmand, one of the largest sources of illegal drugs in the world, the government could convert the region’s economic engine from opium production to manufacturing, made possible through the reliable power and electricity provided by TAPI.

While Afghanistan can’t get enough energy, Turkmenistan can’t sell enough gas. TAPI gained momentum in 2015 in part because of the P5+1 and Iran nuclear agreement that lifted sanctions on Iran and opened the possibility of an Iran Pakistan India (IPI) pipeline. Turkmenistan feared that any gas pipeline from Iran to South Asia could undermine its plan to diversify its gas exports. TAPI plays a pivotal role in diversifying the market for Turkmenistan’s gas exports, and these opportunities have the potential to double Turkmenistan’s revenues.

Every summer, Pakistan faces an 8,500-MW electricity deficit, and a shortage of compressed natural gas (CNG) at its gas stations. Like in Afghanistan, TAPI would play a vital role in meeting the country’s energy needs. The pipeline will give Pakistani officials a chance to fulfill their campaign promises to provide sustainable energy to all. Pakistan understands that total dependence on foreign hydrocarbons is undesirable, but also realizes that domestic renewable energy alone cannot meet baseload demand. Moreover, the ongoing power shortages have caused severe damage to the manufacturing industry in Pakistan, especially the textile sector. TAPI would also lead India to pay $200-250 million in transit fees annually to Pakistan, another boost to Pakistan’s economy.

Considering India’s fast-growing energy demands and its emergence as one of Asia’s economic giants, it faces enormous electricity deficits that cannot be addressed by its current energy supply options. Reports say that India’s power shortfall is approaching 8,000 MW (as of April 2014) – a deficit of 5.4 percent when electricity usage in the country is at its highest. Addressing their energy deficits through joint action can push the partner countries to forget rivalries and past political tension for the sake of collaboration necessary to make TAPI possible.

The most recent obstacle for TAPI was finalizing the ownership structure of the TAPI Pipeline Company Limited (TPCL). The TPCL is mandated to build, own, and operate the $10 billion gas pipeline. In August 2015, the four state companies – Turkmengaz, Afghan Gas Enterprise, Inter State Gas Systems (Pakistan) Limited, and GAIL (India) Limited – endorsed Turkmengaz as the consortium leader for TPCL. Turkmengaz assumed a leading role with a 51 percent stake in the project, with the other three countries each holding a 5 percent share. The remaining 34 percent is being retained for international energy investors who join the project. Reports in late November 2015 said that Dragon Oil, the Dubai-based oil and gas company, had expressed its willingness to invest in TAPI. If finalized, this will be another breakthrough, similar to the groundbreaking ceremony that confirmed TAPI’s progression to the implementation stage. Dragon Oil is also the sole operator of Turkmenistan’s two Caspian offshore oil and gas fields, Dzheitune (Lam) and Dzhygalybeg (Zhdanov). The prospective size of Dragon Oil’s stake in TPCL is unknown, though a $1 billion investment — roughly one-tenth of the total cost — may encourage other energy giants to take part in the TAPI project as well.

Afghans want to transform their country into a major trade and energy corridor. Pakistan and India have great needs for more energy. Turkmenistan seeks to diversify its gas markets. These goals are key factors in the prerequisite agreements that have established the TPCL, endorsed a consortium leader, and inaugurated the project through a groundbreaking ceremony. The importance of the achievements attained in 2015 should not be understated. In 2016, TAPI is well positioned to transform from fairy tale into tangible reality.

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