Too much hope and hype is being built around Prime Minister Narendra Modi’s visit to Turkmenistan — part of his tour of the five Central Asian republics and Russia beginning today. Reports have emerged that the PM’s visit will see the inking of a deal on setting up a urea factory in Turkmenistan, and spur the long-in-the-works Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline.
Modi’s visit is much-delayed reciprocity for Turkmen President Gurbanguly Berdimuhamedov’s visit to India in May 2010 — the last Indian Prime Minister to be in Turkmenistan was P V Narasimha Rao, back in September 1995.
Overseas commercial deals call for long-term commitments from both sides. India submitted its proposal to build the urea plant when External Affairs Minister Sushma Swaraj visited Ashgabat in April, but the Turkmen side is yet to respond.
Turkmenhimiya, a state-owned chemicals firm in Turkmenistan, and India’s Rashtriya Chemicals and Fertilisers (RCF) are looking to set up the plant on the lines of the Oman-India Fertiliser Company (OMIFCO) urea project in Oman. Negotiations — on gas feedstock pricing, project equity sharing, urea offtake, etc. — are yet to start.
Greater — and more complex — externalities are involved in the TAPI project. The 1,800-km pipeline would pass through the Taliban heartland of Afghanistan’s Kandahar province and the neighbouring Quetta region of Pakistan, before delivering gas to India.
It is okay for Afghanistan, Pakistan and India to agree to buy gas from Turkmenistan, and to commit to associated prices and tariffs — as they have done since the framework agreement was signed in April 2008. These are mere numbers that can be renegotiated along the way — the price of gas in the case of OMIFCO, for example, was changed seven years into the 15-year agreement.
It is also okay for Ashgabat to commit the Galkynysh field with commercial reserves of about 14 trillion cubic feet for the pipeline. If that runs short, the world’s fourth largest gas reserve holder could switch on another field to feed 14 million standard cubic metres a day (MSCMD) of gas to Afghanistan and 38 MSCMD each to India and Pakistan.
But for this gas to flow and become a marketable commodity, there remains the nightmare of building a pipeline and maintaining its gush while terrorism in Afghanistan and Pakistan continue to threaten it.
Turkmenistan won’t take on the headache of what goes on beyond its boundary. Afghanistan and Pakistan don’t have the money to even consider part-financing the $10 billion project. And it would make little sense for India to sink that kind of money in such an uncertain security scenario.
That investment can only come from a deep-pocketed company based out of one of the permanent members of the UN Security Council holding veto power. This project leader, with equity participation from all four nations, can provide a degree of assurance that the gas would reach its destination.
However, for an investment this size, the consortium leader would want significant collateral to recover its funding, should the pipeline go into force majeure as a result of a terrorist attack.
Every company that has evinced even a sliver of interest in taking the lead role in the project has asked for equity stake in the Galkynysh field in exchange. But Ashgabat has refused, owing to complexities regarding private ownership of land in Turkmenistan’s law.
As a result, US oil majors Chevron and Exxon Mobil, who were keen to lay the pipeline and run it provided they got upstream project equity, have withdrawn. Subsequently, China National Petroleum Corporation — which has been operating in Turkmenistan since 2002 and operates two gas pipelines to its country — also withdrew.
France’s Total SA then emerged as the leading candidate — however, in February, the TAPI steering committee in Islamabad failed to select it as the consortium leader. A special TAPI meeting was convened in Kabul a month later, but that too failed to take a decision on the matter.
The primary reason is that the three gas buyers want to conduct a bidding process to select the pipeline leader — unconditional of upstream equity — to ensure that project costs, and hence transportation charges, are not inflated.
With Russia’s Rostec emerging as a key contender, however, Turkmenistan has agreed that the bidding process be conducted while it continues to negotiate with the bidders on upstream equity in the form of a technical services contract which would give the selected leader the first right of refusal over gas extracted from Galkynysh.
Ashgabat has assured that the winner of the bidding process would also be its choice for equity in Galkynysh. The stakeholders are expected to complete the bidding process by October, and financial closure by December.
Considering the agreed timeline and the unresolved issues among the four nations — as well as among the three buyers and the seller — it would be unrealistic to expect the PM to announce any major outcome during his visit.
He might, at best, reiterate India’s commitment to playing a major role in the pipeline, and assure the country’s purchasing power for the entire natural gas it would transport. That would signal India’s involvement in Central Asia, and reassure Turkmenistan which is now determined to diversify into markets beyond China and Iran after Russia turned marginal around October 2014.
The PM could also acknowledge the security risks associated with the pipeline, and assure that India is willing to mitigate or share them. He could seek Turkmenistan’s support in influencing Afghanistan and Pakistan to put in place measures for the pipeline’s security.
The TAPI project is crucial to India, as its success would spur other connectivity such as road and rail between Central Asia and India, and potentially change economic relations. Diplomatic relations too could undergo a sea change, bringing Central Asia out of the Russian-Chinese orbit.