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Turkmenistan deal revives Iran hopes

Oil ministers of Pakistan and India announced that they had made “significant progress” in bilateral talks on a number of outstanding issues on the IPI gas pipeline project, reports N Chandra Mohan.

business Updated: Apr 25, 2008 23:10 IST

The good news is that the $7 billion Iran-Pakistan-India (IPI) gas pipeline project is very much alive and kicking, contrary to the widespread impression that it will be shelved due to relentless American opposition. Taking things one step further, India has also formally joined the Washington-backed $7.6 billion Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project that would stretch across 1,680 km to deliver gas from the Dauletabad gas field in Turkmenistan to Fazilka on the Indo-Pakistan border by 2015.

On Friday, oil ministers of Pakistan and India announced that they had made “significant progress” in bilateral talks on a number of outstanding issues on the IPI gas pipeline project and predicted that the project would start supplying natural gas by 2012. Construction work on this project will commence in 2009 and the project would supply natural gas from the South Pars gasfield in Iran on a 50-50 sharing basis between India and Pakistan. The project would supply 2.06 billion cubic feet of gas per day.

The announcement comes a day after the 10th steering committee of oil ministers from Turkmenistan, Afghanistan, Pakistan and India on Thursday agreed to start construction work on the much-delayed TAPI project.

It is, however, premature to uncork the bubbly. India’s security concerns have not gone away for both projects as both pipelines traverse through volatile regions. The three possible routes for the IPI pipeline, for instance, pass through insurgent Balochistan. India has had an on-off relationship with this project thanks to its tensions with Pakistan. As for TAPI, the Afghan government has not been able to establish its authority beyond Kabul, and the risk of pipeline being sabotaged by the resurgent Taliban is an ever-present danger.

Since mid-2007, India has not participated in trilateral talks on the IPI project. But there are compelling reasons for New Delhi to rejoin talks on IPI and formally become a full member of TAPI. Although the Indian government formally denies the 'China factor', it was only after Beijing expressed an interest in this project —with Pakistan’s President Pervez Musharraf stating that IPI can well be an Iran-Pakistan-China pipeline—that New Delhi bestirred itself to restart negotiations with both Islamabad and Teheran.

India's compulsions are basically economic. “As far as India is concerned, we want to settle and activate both [the pipelines] because energy demand in India is so much and oil prices are shooting up,” says Petroleum Minister Murli Deora. India will need to import as much as 75 billion cubic metres (BCM) of gas by 2024-25 for rising power generation, fertiliser production, industrial uses and household consumption. Thanks to domestic shortages, 13,444 mw of gas-based capacities in the power sector are now generating less power than they can.

As both these pipeline projects become viable with India’s participation, New Delhi should leverage its position to get the best possible price for gas. Gas pricing has indeed been a sticking point for the highly controversial IPI project.

Transit and transportation charges levied by Pakistan are another. According to a formula based on the price of crude oil imported by Japan, the price of Iranian gas is $4.93 per million British thermal units (mmbtu) for delivery at the Iran-Pakistan border. Transit and transportation raises it to $7 per mmbtu at the Indian border.

India finds this price to be somewhat high and the whole purpose of talks with Pakistan was to lower the transit fee to a “range that is mutually acceptable”, among other things. But there aren’t that many options to import gas any cheaper as oil prices keep rising.

With Japan’s crude prices now touching $100 a barrel, India might have to pay more, around $8 per mmbtu, for Iranian gas at its border. If this is more than it is willing to pay, it must negotiate hard in the TAPI project to lock in cheaper gas supplies, say between $4-5 per mmbtu. But all of this can happen only when there is third party certification of Turkmenistan’s gas reserves that it is claiming to be around 8 trillion cubic meters. For all its concerns, India perhaps has no alternative but to make both these projects work for its energy security.