The pipeline puzzle
By Kunwar Khuldune Shahid

Not only does Pakistan not have the money to build its half of the IPP, even if the pipeline gods send elves at night to construct the 750 kilometres of the pipeline, Islamabad simply cannot afford the Iranian gas.


The pipeline gods clearly do not support the creation of an energy sharing pipeline web in South Asia, which would knock down two pretty nasty birds with one ingenious stone: the energy shortfall and regional security concerns. The pivot of this web linking Central Asia with South East Asia would have to be Pakistan, where all pipeline plans have witnessed what seems like divine intervention of the wrong kind.

The Iran-Pakistan Pipeline (IPP) faced the US stick; the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline was supposed to be the carrot, albeit one that could be eaten up in the northeastern part of Afghanistan, and then there was the 15-minute cameo played by the potential India-Pakistan pipeline, which was an ‘Aman ki Asha’ (hope for peace) if there ever was one. Unfortunately, that cameo was forestalled by ‘non-state actors’ staging their theatrics on the Line of Control (LoC).

Back to square one, then.

Even so, recent events suggest that there might be an opening that may lead Pakistan to unravelling the pipeline mystery that has haunted the country’s energy sector in the recent past. First up, we have the nuclear talks going on in Geneva between Iran and the ‘six world powers’, with all concerned parties ostensibly coming closer to acknowledging Iran’s right to enrich uranium without breaching the nuclear Non-Proliferation Treaty (NPT). John Kerry is about to land in Geneva as this piece is being scribed, and the US is even bordering on going soft on Iran’s nuclear project and mulling over easing the sanctions on Iran. This moment clearly gives Pakistan the window of opportunity to squeeze IPP out of the chamber of diplomatic uncertainty. However, with a breakthrough on the IPP front seemingly imminent, the Pakistani government seems to be looking elsewhere.

All four countries involved in TAPI have signed the Transaction Advisory Services Agreement (TASA) with the Asian Development Bank (ADB), which is supposed to officially set the ball rolling for TAPI. And with the ADB being appointed as the transaction advisor, the pipeline company establishment, consortium leader bidding and the technical management seem to be in relatively safe hands.

Pakistan seems to have given TAPI the green signal at the expense of IPP, when work on the latter could have been initiated as well. But there are two factors that we need to keep an eye on in the light of the recent updates. The first is that agreements have been signed on the IPP front as well, and so Pakistan’s signature on TASA will not mean much if the practical side of things is not worked on. Secondly, it is important to note that, despite signing agreements left, right and centre, the actual problems that make both the IPP and TAPI seemingly unsolvable puzzles, are not even close to being addressed.

As surprising as it might sound, with IPP — the $ 7.5 billion ‘peace pipeline’ that is supposed to deliver 21.5 million cubic metres of gas per day to Pakistan — the US’s animosity was always a subplot. The actual issue hindering the IPP’s construction is financial and not diplomatic. Not only does Pakistan not have the money to build its half of the IPP, even if the pipeline gods send elves at night to construct the 750 kilometres of the pipeline, Islamabad simply cannot afford the Iranian gas, which would cost $ 14/MMBtu. If gas from Iran is imported, we would have volumes of natural gas that Pakistan’s local industry would not be able to afford.

So, basically, for the IPP, Pakistan would first have to conjure up the $ 2 billion needed to construct its half of the pipeline, convince the US to keep the sanctions gun in its pocket, somehow manage to keep Balochistan peaceful for the pipeline to pass through and, at the end of it all, get natural gas at $ 10/MMBtu, more than what Iran pays when it imports gas from Turkmenistan — the country that has the Yolotan-Osman gas field, the origin of TAPI.

TAPI, meanwhile, bears an uncanny resemblance to the Baku-Tbilisi-Ceyhan (BTC) pipeline, not only in terms of its length (1,750 km), having its origin adjacent to the Caspian or the support of a global bank. Most importantly, the problems engulfing BTC were similar to the ones surrounding TAPI, and often similar problems tend to have similar solutions. Hence, BTC is an important case study for everyone involved in the TAPI project.

The most significant challenge for TAPI is the security situation in Afghanistan, just like Azerbaijan was for BTC back in 2002. How the BTC stakeholders countered that was by mustering the support of oil and gas companies, since the best way of ascertaining the security of a pipeline project that traverses a volatile zone is by signing deals with resource owning firms. When these firms become major stakeholders, ensuring the security of the project becomes their problem.

Also, once the fiscal growths of respective countries is linked to peace in a particular region or country, with the resource firms on board as well, everyone starts toiling hard to ensure that that particular zone remains tranquil. The annual 33 billion cubic metres of gas being distributed through TAPI would help bridge Pakistan’s energy deficit, and for that we need peace in the northwest of Afghanistan.

TAPI would bolster the security situation in Afghanistan, but it also needs a secure Afghanistan to kick-start the project. This is a chicken-and-egg debate, but Pakistan can no longer afford to chicken out of it, especially considering that the answer to Pakistan’s pipeline puzzle might be the answer to the Afghan question post-2014 as well.

The writer is a financial journalist and a social critic. He tweets @khuldune and can be reached at khulduneshahid@gmail.com
http://www.dailytimes.com.pk/default...-11-2013_pg3_3