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24 Dec 2017 - 19:49
author avatar
24 Dec 2017 - 19:49

The 1814 Km gas pipeline between Turkmenistan, Afghanistan and India is expected to deliver 33BCM natural gas to Afghanistan, Pakistan and India per annum. Turkmenistan is seller of the gas, gas off-take of Afghanistan, Pakistan and India is 1.5%, 49.25% and 49.5% respectively. The construction of the pipeline is estimated to be completed in four years after commencement of construction work, Gas Sale and Purchase Agreement is for 30 years, which is the expected lifespan of the project.

                  

The Ministry of Mines and Petroleum will negotiate, sign and finalize Inter-Governmental Agreements with other three stakeholders. The Ministry will represent the Government of Afghanistan and will facilitate and take active role in construction of TAPI pipeline. This article will discuss the pros and cons of the projects for Afghanistan economy, its potential positive impacts on private sector and its contribution in national economy, if properly managed. Moreover, it discusses a number of existing challenges and risks that TAPI project could pose to Afghanistan, to overcome the challenges and risks. Appropriate risks mitigation strategies has been discussed and proposed.

First, the TAPI Project will generate revenue for treasury of the Government through transit fee and taxes. Only through transit fees, Afghanistan will receive approximately USD 450 million per annum. Second, it will create thousands of job opportunities during and after construction, for operation, maintenance and security of the pipeline. Third, domestic business and goods will be promoted through using local goods and services. Fourth, Afghanistan could generate hundreds of Mega Watts of electricity during the life-span of the project. The power production not only attracts hundreds of millions of dollars additional fixed asset investment, but also eliminates tens of million dollars that currently outflow from Afghanistan to pay for imported electricity. In addition, local and foreign investors will view the electricity generated within Afghanistan as a stable source of energy, a view that could lead to growth. Internally sourced electricity is less susceptible to international price spikes and embargoes. Most importantly, through such projects, government can win “the hearts and minds of people”, generating their support in securing protection of the pipeline. Fifth, Training and building the capacity of Afghan engineers and other professionals. Sixth, it builds a Common Future of Multi-Nation Cooperation. The project can create a platform for regional cooperation that could lead to boost regional economies of both gas exporter and importer; the gas sellers will diversify their source of revenue by selling gas, could enable them to negotiate their gas price and sell it at a better price; on the other hand, the gas importing nations need the energy to continue their current economic growth, particularly Afghanistan will be enable to establish new industries and business. The regional economic cooperation in the region will have positive economic spillovers and mass population that are currently recruited by the insurgent movements, busy in poppy cultivation and other illegal economic activities. Instead, they could find a legal source of income; they could be recruited for securing the pipeline and employed by factories that could be established after TAPI pipeline operation. There are countless benefits for Afghanistan and for the region that could not be ensured without implementation of TAPI project.

The implementation of TAPI project is not without challenges:  There are numerous challenges that government of Afghanistan needs to resolve before commencement of construction work of TAPI project.  Some of the challenges are discussed below. These challenges include security situation in Afghanistan, the international security risks, lack of an infrastructure to distribute gas inside Afghanistan and financing and economic gaps.

International Challenges: The international challenges are mainly political in nature that delayed progress of this project. Additionally, few international companies are capable to construct and fund a pipeline similar to TAPI pipeline with such length and diameter. So far, Shoran and Aksan companies showed interest on investment in TAPI project based on condition to offer TAPI project as a single project which include gas field development at Yolotoon gas field of Turkmenistan. Despite three years long negotiations with Turkmenistan, they failed to convince Turkmenistan to consider TAPI project as a single project. The investors argued; why they should risk billions for construction of a gas pipeline when they are not assured about the availability of gas and the development of a gas field. Recently, the Government of Turkmenistan agreed to follow the SWAPP model of pipeline construction in this project, which is currently in practice in Iraq. Therefore, the Total Company is ready to invest in construction of TAPI pipeline based on SWAP terms and conditions. If Turkmenistan and Total Company reached an agreement in near future, construction work of TAPI pipeline will be commenced. In addition Petronas Company of Malaysia and a number of Chinese Companies also showed interest to take part in TAPI pipeline construction. On the other hand, in 2008, Iran, Pakistan and India reached to an agreement to implement Iran, Pakistan and India (IPI) natural gas pipeline between three nations. Due to US sanctions on Iran, they failed to implement IPI project. Meanwhile, India also withdrew from IPI natural gas pipeline negotiations. The author argues that compared to IPI, TAPI is in the greater interest of the region, even the interest of the project is greater for Iran; for example, the regional countries could not keep Afghanistan poor and isolated from regional integration anymore, even if they do so, the people in the region will remain involved in poppy cultivation and that could pose a risk for Iran and the region. They need to spend hundreds of millions dollars to cure their addicted population at rehabilitation centers. Therefore, the author believed that prosperity of the region is in economic development of Afghanistan which is an integral part and hub for regional economic cooperation. 

National Challenges: Acting on the behalf of Afghanistan, the Afghan Gas Enterprises (AGE) is responsible for implementation of TAPI projects. This poses a major risk for Government of Afghanistan because AGE is a government entity and it will be responsible for financial liabilities for below-cost gas sold to consumers in Pakistan and India. In the case of bankruptcy, the amount of debt will be beyond power of AGE assets to repay its debts and hence, the national government will be obliged to repay. Fortunately, Government of Islamic Republic of Afghanistan identified the weakness and invested huge amount to assess technical, financial and operation capability of AGE. Government is committed to invest hugely for smooth implementation and operation of this project.

Financing needs: Afghanistan needs financing to build the required infrastructure.  The annual transit fees will not be sufficient, considering active presence of international community in Afghanistan and their annually billion dollars in aid to help Afghanistan to pay for its operation and development budget. It is highly possible that the international partners of Afghanistan will fund on behalf of Afghanistan; because in the long-run, this project will generate hundreds of millions for Afghanistan and decrease financial burden on international community supporting Afghanistan.

Security situation in Afghanistan: The TAPI pipeline route is through restive provinces of Afghanistan. From 2001 through 2014, thousands of Afghan, NATO. After partial withdrawal of US and NATO forces from the area, the security situation is worse than before. In response to these security threats, Government of Afghanistan decided to establish a special unit to provide security for the construction and operation of the pipeline. In addition, government will approach local population to attract their support in construction of TAPI pipeline. During the year 2017, Government of Afghanistan launched Public Awareness Conferences along TAPI route. The aim was to explain the potential benefits of the conferences to the masses. In response, the residents of those regions including local elders, clerics, civil societies and local government assured that they will support the project implementation and operation. Local people support is the key for project implementation and hugely decreases security costs and makes the project feasible.

Infrastructure and gas utilization: Afghanistan currently lacks the infrastructure (no grid or power plant) to receive and utilize the gas that would be delivered through TAPI. Financing needs: Afghanistan needs financing to build the required infrastructure (annual transit fees will not be sufficient to construct an extensive national network of pipelines). Central Asian gas is often sold at terminals where the gas is delivered at off-take points. To fill the financial gap, Afghanistan needs to outlines power generation projects along TAPI route and other gas usage project including but not limited to distribution of gas to industries, residential and commercial areas. The mentioned investments could be hundred millions of dollars. If the government properly lobbies for the project and outlines the investment opportunities at different investment summits, Afghanistan could easily overcome the challenge.

View expressed in this article are of the author’s own and do not necessarily reflect Pajhwok’s editorial policy.

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The views expressed in this article do not necessarily reflect Pajhwok's editorial policy.

Author's brief introduction

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Obaidullah is a development economist. He graduated from Public Policy Program of National Graduate Institute for Policy Studies at Tokyo, Japan, specializing in international development studies. The ideas and recommendations in this article do not represent an entity. They are solely belongs to the writer.

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