Our fuel imports


-Editorial

WEB DESK: Prime Minister Nawaz Sharif while addressing a joint press conference with the visiting President of Turkmenistan Gurbanguly Berdimuhamedov stated that he wanted early completion of the Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline on which construction began on 13th December 2015.

It envisages a 1,814-kilometre long pipeline starting from the Galkynysh gas fields in Turkmenistan passing alongside the Kandahar-Herat highway in Afghanistan and via Quetta and Multan reaching the Indian town of Fazilka, on the border of India and Pakistan with a capacity of 33 billion cubic metres of natural gas per year. The project envisages 5 billion cubic metres to be provided to Afghanistan and 14 billion cubic metres (490 billion cubic feet) each to Pakistan and India. According to the Petroleum Minister Shahid Khaqan Abbasi, TAPI has the capacity to meet 70 percent of our gas shortfall.

The project was conceived well before 9/11 but subsequent to US military engagement in Afghanistan this project drew strong support from the US with the then US Ambassador to Turkmenistan Ann Jacobsen acknowledging that: “We are seriously looking at the project, and it is quite possible that American companies will join it”.

The pipeline assumed geo-political dimensions when Russia’s Gazprom, that had been the major buyer of gas from Turkmenistan till the early 2000s with Iran the next major customer, signed a deal with state-owned Turkmengaz for a long-term take-or-pay agreement for the supply of 10 bcm of gas per annum at 240 dollars per 1000 cubic metres. However in 2014, Gazprom decided it would not buy anymore gas from Turkmenistan given the drop in natural gas prices due to their oil-indexation which made purchasing Turkmen gas and then reselling it abroad simply too expensive for Gazprom.

Independent analysts in Pakistan accused the US of pushing through a project that was fraught with risks associated with the Taliban offensives along the proposed route that continue to this day – a risk that would automatically raise the project costs. Additionally, they maintained with a degree of credibility that the US was pushing energy-deficient Pakistan to forge close energy ties with Turkmenistan (gas) and Tajikistan (hydel surplus during the summer) as opposed to with Iran which was sanctioned till very recently. Be that as it may, TAPI’s implementation was delayed not only because of concerns over its possible targeting by the Taliban – Afghan and/or Pakistani – but also because of the Gazprom-Turkmengaz deal in 2010.

By late 2015, all previous mitigating factors in the implementation of TAPI were resolved and construction began a little over three months ago but delays led to escalation in the cost from the original 7.6 billion dollars to more than 10 billion dollars. However, the project is widely seen as a win-win situation for not only the seller Turkmenistan but also the three energy-starved South Asian countries though concerns about the risks associated with a war-torn Afghanistan remain as negotiations between the Afghan government and the Taliban remain stalled. What is an important, albeit negative, development from Pakistan’s perspective in recent months is Indian gas companies’ proposal for an undersea pipeline from Iran to India with plans to transport gas from Turkmenistan to India through this route; if this proposal is implemented then TAPI will neither be seen as a pipeline of friendship and greater connectivity between the two South Asian rivals but would also make us ineligible for annual payment by India as a transit country.

TAPI is just one of four fuel import projects that have been in the works for the past two decades at least. The purchase of 1000MW hydel electricity from Tajikistan under Central Asia South Asia (CASA-1000) project envisages a 750-kilometre long transmission line by year 2018 at an estimated cost of 1.16 billion dollars. The transmission line would pass through Afghanistan and similar risks as TAPI are associated with this project.

The Tajik Ambassador to Pakistan recently revealed that a feasibility study for CASA has been finalised with the World Bank support and financing is under consideration from International Development Association, Islamic Development Bank, Arab groups and other donors and a Multi-Donor Trust Fund would also be established. India remains engaged with this project so far; however, it is not clear if the Modi government would abandon it as implementation begins.

Iran-Pakistan pipeline is the third fuel import project envisaged as Iran is no longer sanctioned. However, the dearth of capital makes this project implementation conditional on smoothing out banking and other restrictions on Iran. And finally the LNG import deal with Qatar was signed last month and though it has yet to be placed on the PSO or PPRA websites, yet imports have begun resulting in lower shortfalls in the CNG and fertiliser sectors as well as in the power sector. Unfortunately, though controversy continues to surround the deal and one can only urge the relevant authorities to place the actual deal on the website so that an assessment on its merits or demerits can be made by relevant experts.

It is relevant to note that the Sharif administration remains focused on enhancing generation to meet the shortfall. In addition, the 35 billion dollar investment in the energy sector envisaged under the China-Pakistan Economic Corridor focuses largely on coal and alternate energy sources. Unfortunately, though these generation projects are not accompanied by power sector reforms accounting for the ninth International Monetary Fund review to note that “at the heart of the problem has been the power sector’s chronic inability to cover costs” and urges “continued improvement of governance of the distribution companies and other aspects of reform” that would ensure that the potential capacity of 21,143MW is realised. Today Pakistan’s capacity utilisation varies from 50 to 75 percent at best and disturbingly as capacity utilisation rises so does the cost of generation.

Source: Business Recorder