Crunch time

It should not come as a surprise if Kabul prefers to do oil business with China rather than get involved in the TAPI project.

The Turkmenistan-Afghanistan-Pakistan-India gas pipeline project [TAPI] is embarking on a Road Show in September, inviting oil companies to get engaged with it. The Asian Development Bank has been designated as the Transaction Advisor.

The ADB will organise the ‘road shows’ in the major financial hubs like Singapore, London and New York. The purpose of these events will be to gauge the market response, which would hopefully help in the constitution of a consortium of companies with the requisite technical capability and/or financial base for undertaking the funding and construction of the project.

The United States has voiced its enthusiasm for the ‘road show’. “Many American companies are very interested in participating,” US assistant secretary of state for South and Central Asia Robert Blake said Monday during a regional tour of Central Asia. But he quickly added a caveat. Everything now depends on “what is on offer”, he said – “There are a lot of risks to participating in such a pipeline. Part of their (American companies’) consideration will be what kind of incentives Turkmenistan will be prepared to offer international companies to get involved in that project. We will see when the road show takes place.”

Blake acknowledged that the road show would generate “a crucial series of discussions.” But he was uncharacteristically reticent in voicing optimism. A new dimension has appeared – Big Oil needs to be “incentivised”. What is it that the US companies would expect? More important, who on earth could “incentivize” Big Oil?

Conceivably, a good Rate of Return and/or a role in the development of upstream gas reserves in Turkmenistan – or, both – would be attractive. Then, there is the great game over the Caspian energy reserves. No doubt, the US companies would like to get access to the Turkmen gas sector on par with what Chinese companies have secured.

The longstanding US strategy is to encourage multiple pipelines through which the Caspian energy could be evacuated to the world market and, secondly, to facilitate direct energy exports to the Western markets by the region’s producer countries. The strategy aimed at reducing Europe’s high dependence on energy supplies from Russia, which has geopolitical implications. Turkmenistan is a crucial player in this overall strategy – as much as Azerbaijan.

But Russia’s star is on the wane in Central Asia. The US specialists are getting increasingly nervous about the rapidly expanding Chinese presence. And Turkmenistan is the anchor sheet of China’s ‘gas diplomacy’ in Central Asia.

This is where TAPI figures in the first circle of the politics of Caspian energy. Unsurprisingly, the TAPI faces challenge from China. Pakistan and India expect a full-blooded Afghan participation in TAPI, as was originally agreed in December 2010 when they signed the so-called Framework Agreement and they may not accept any retraction by Kabul preferring only a limited role as a mere transit country.

Second thoughts

However, Kabul seems to be developing second thoughts, and at any rate, negotiations remain inconclusive between Turkmenistan and Afghanistan over their bilateral GSPA.
Kabul probably hopes to keep options open to develop its own energy sector in collaboration with China as well. Beijing has proposed to Kabul a brilliant idea to construct a gas pipeline in northern Afghanistan that would align with the Central Asian gas grid leading from Turkmenistan, which connects the region’s gas producers with Xinjiang. A Sino-Afghan working group is currently fleshing out the proposal.

The heart of the matter is that China has set its sights on the great Bokhtar energy reserves in the Amu Darya basin shared by Tajikistan, Uzbekistan and Afghanistan.

(Canada’s Tethys Petroleum estimates that Bokhtar could have 8.5 billion barrels of oil and 114 trillion cubic feet of gas deposits.) China already secured last December the first contract for oil exploration in the Amu Darya region. The Chinese companies are savvy in business promotion work in Kabul. They have big money to invest and also hold a secret trump card in their tie-up with the powerful Afghan business group Watan, which is owned by President Hamid Karzai’s family members.

It should not come as a surprise if Kabul prefers to do oil business with China rather than get involved in the TAPI project (beyond being a mere transit country). India needs to work on the Afghan government. The trilateral US-Afghanistan-India forum is scheduled to hold its first meeting in the coming weeks.

Arguably, there is a congruence of interests between the US and India to encourage a full-blooded Afghan participation in the TAPI. The American and Indian companies are interested in joining hands to exploit Afghanistan’s mineral resources.

To be sure, the TAPI is inducing strange realignments in regional politics. There is a high degree of harmony today in the Indian and Pakistani approaches, whereas their acrimonious relationship was previously regarded as the single biggest drawback for the TAPI project. Again, Kabul used to be the project’s most enthusiastic votary, but it may find the prospect of becoming an energy exporter to the Chinese market more rewarding.

The US has been the patron saint of the TAPI since the mid-1990s when it was first conceived but now would expect Ashgabat to “incentivise” Big Oil. Curiously, the ubiquitous Taliban are the one constant player, faithfully committed still to TAPI, which they keenly promoted in the 1990s – despite all that happened since 2001. With the ‘road show’ from September 10-20, the crunch time has come.

(The writer is a former ambassador)

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