Moneycontrol PRO

Tapi pipe(line) dream rises again from the ashes of the Afghan war

Huge questions still hang over the project, though. Among them are the difficulty of pushing a pipeline through a war-torn country, and financing the Tapi pipeline which ADB says could cost USD 10 billion.

October 30, 2021 / 08:17 AM IST
In February 2018, a ceremony was held at Serhetabat to mark the completion of the Turkmen section of the Turkmenistan-Afghanistan-Pakistan-India natural gas pipeline. (Photo by Allan Mustard via Wikimedia Commons 4.0)

In February 2018, a ceremony was held at Serhetabat to mark the completion of the Turkmen section of the Turkmenistan-Afghanistan-Pakistan-India natural gas pipeline. (Photo by Allan Mustard via Wikimedia Commons 4.0)

In the hours before the guests arrived for dinner, one evening before Christmas in 1997, Unocal vice-president Marty Miller and his wife Caroline put the final touches on the décor at his sprawling home in the improbably-named Texas town of Sugar Land: large black garbage bags, draped over the Indonesian funereal statues by their swimming pool. The statues, a consultant had told Miller, might offend his guests, the top leadership of the Taliban. “The statues made it very obvious,” he was to delicately explain, “who the guy and who the gal are.”

Little remains to document that meeting but a photograph of a grinning Abdul Ghaffar Muttawakil, foreign minister in the first Taliban emirate, against the background of the Millers’ Christmas trees.

This weekend, officials from Turkmenistan are expected to arrive in Kabul to discuss beginning work on the 1,800 kilometre Tapi pipeline, which  Miller’s imagination helped birth—and, if it wasn’t for 9/11, Unocal might just have pulled off. Tapi is designed to carry 33 billion cubic metres (bcm) of natural gas each year from the Galkynysh fields, the world’s second-largest, across Afghanistan and Pakistan into Fazilka in southern Punjab.

For more than three decades, the project has been seen as a win for all its participants. Landlocked Turkmenistan would find markets for its gas, cash-strapped Afghanistan and Pakistan would gain from transit fees, and hydrocarbon-hungry India from reliable, cheap energy. Even as it fought the Afghan state, the Taliban promised not to attack any Tapi-related construction work, knowing it would also bring windfall gains.

Ever since 2016, New Delhi has backed Tapi; government-owned energy giant GAIL owns a 5% stake in the Tapi Pipeline Company, the special-purpose consortium behind the project. Is its time finally coming, now that the war in Afghanistan is ending?

Read more: Why India should pay attention to the Taliban's pledge in Turkmenistan

In spite of the hype, though, huge questions hang over the project—and not just about the obvious issues related to pushing a pipeline through a war-torn country. Financing the pipeline is the biggest of them. The Asian Development Bank (ADB) has estimated the cost of building the pipeline itself at some $10 billion. Experts believe the actual figure somewhat higher, at $14-16 billion, not counting upstream investments needed for Turkmenistan to produce the promised 33bcm.

Expert Steve Mann has suggested that, in reality, “it is very reasonable to view TAPI as a $40 billion project”. Finding that money is proving hard.

For one, commercial banks and international oil companies have shown little interest in the project, despite years of effort. The ADB has said it will contribute $1 billion. Turkmenistan, hard hit by slumping demand for gas in China, has pledged another $1.7 billion. The rest is expected to come from commercial sources, lending to each of the four individual governments based on sovereign guarantees.

The rise of the Taliban, though, raises the obvious question: a sovereign guarantee from a regime that isn’t even recognised by the international system clearly isn’t worth a great deal. For commercial banks, there are also a host of related issues: how to price the risk of a project running through Afghanistan; the problems that come with international sanctions; the risks of damage to their reputations.

In order to keep costs down, Turkmengaz has proposed a Phase 1 plan which does away with six pumping stations, and uses gravity to push gas into Pakistan. That reduces the investment to $7.7 billion. However, it reduces the gas flow to 11 bcm, a third of the eventual flow. This, however, also means reduced revenues—making the project even less attractive to potential investors.

To make things worse, Turkmengaz, which has an 85% stake in Tapi, has no experience of constructing or operating a project of this complexity and scale.

Ashgabat’s desperation to get the project off the ground isn’t hard to understand. From the 1990s, its major customer, Russia, prioritised developments of its own natural gas fields. The northward flow of Turkmen gas dwindled to almost nothing. Fortunately for Turkmenistan, China picked up the slack, buying an estimated 30 bcm each year. Ashgabat, though, has faced the inevitable pricing problems that come with having just one customer—and sees Tapi as potential salvation.

Islamabad, too, has obvious interests in the project. The country does not need Turkmenistan’s gas—Pakistan already produces too much power, partly as a consequence of a spate of Chinese-built projects that have come online since 2017—and has had chronic problems paying its bills. Pakistan’s strategic establishment, though, believes Tapi will consolidate its leverage in Afghanistan, and also give it a tool with which to inflict pain on India’s economy in times of crisis.

For exactly those reasons, New Delhi has been deeply ambivalent on Tapi, ever since the project’s genesis. As a tail-end consumer, though, India will not have to bring cash to the table until the project is almost complete—and it’s an open question if that will happen at any time in the foreseeable future.

Even though Tapi makes sense for each of the actors, history has shown how fragile good intentions can be. In April 1996, United States diplomat Robin Raphel—then the United States’ assistant secretary of state for South Asia—toured the region to drum up support for the idea. In a private meeting with Russian’s deputy foreign minister, Albert Chernyshev, Raphel said she hoped “peace in the region will help facilitate United States business interests, like the proposed Unocal pipeline”.

Later that year, Raphel was in Kabul again, this time calling on the international community to “engage the Taliban”. “The Taliban does not seek to export Islam, only to liberate Afghanistan,” she said.

Things didn’t run to plan: In spite of its promises, the Taliban failed to rein-in Osama Bin Laden, leading on to the 9/11 attacks, and the long war which followed. The Islamic Emirate’s now-foreign minister Amir Khan Mutaqqi, economics minister Qari Din Muhammad, and Taliban spokesperson Zabiullah Mujahid will all have memories of the surprisingly short time it takes to turn from a VIP feted by oil giants to an internationally-sanctioned terrorist.

Afghanistan’s pipeline dream has refused to go up in smoke, evidence to its compelling economic rationale. Like so many other good ideas, though, it seems fated to be a victim of circumstance.

Praveen Swami