TAPI’s confused objectives, risky implications

India should not invest in making itself vulnerable to geopolitical blackmail

Kabir Taneja quotes me in an article in the Sunday Guardian on the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline project. Here are my views in greater detail.

What is your general consensus on TAPI? Does it benefit India geo-politically?

It is unclear what India’s primary purpose is with respect to the TAPI and the IPI gas pipelines. If it is energy security, then clearly placing an important source of fuel in the hands of a hostile actor like the Pakistani military-jihadi complex defeats the purpose. If it is geopolitics, it raises the question if energy security is being sacrificed at the altar of wishful thinking about potential geopolitical gains.

India would do well to invest in LNG terminals and infrastructure, enabling it to purchase gas from anywhere in the world, including from Iran and Russia. Energy security lies in trying to make the international natural gas market as competitive as possible.

What are your main reservations on the project?

Any project that relies on Pakistan is fundamentally risky.

First, even before the resurgence of the Baloch insurgency, pipelines were routinely targeted in inter-tribal political violence. Now with a full-blown insurgency, the extent of which is unclear, but where Pakistani air power and armour is being employed, the political risk rules out any pipeline investment.

Second, the Pakistani military-jihadi complex has entirely different incentives compared to the the putative Pakistani state. It’s tendency to pursue actions that undermine Pakistan are well-known: it conducted nuclear tests in 1998 despite knowing that this will cripple the economy. More pertinently, it has blocked the transit routes for US & NATO forces since Dec 2011 even at the cost of more than $1.2 billion in coalition support fund payments that it is owed. The transit route business is highly profitable to the army and its business empire. A conservative estimate is that the Pakistani military establishment collected around $360 million in different forms of rent, over the last five years.

This puts paid to the assertion that the Pakistani army will permit transit if it benefits financially. Clearly, its behaviour shows that is not the case. The Pakistani army is likely to use the gas pipelines as leverage against India and Afghanistan, regardless of the economic consequences to itself.

Supporters of TAPI suggest that it will help tame the populations of troubled regions in Afghanistan and Pakistan by creating mass employment. Thoughts?

This is a dubious suggestion. In fact, it would be terrible to impose a “resource curse” on a population wracked by radicalism and violence. What the region needs is investment in human capital and political stability that allows normal economic activity to take off. Putting gas fields and pipelines in regions of turmoil will create political economies that might worsen the conflict by providing more funds to warlords. Unless the fundamental security problem is tackled, gas revenues, like drug revenues, flow into the war chests of militant groups.

5 thoughts on “TAPI’s confused objectives, risky implications”

  1. Agree with your assessment in general. However, it does not address the key point in favor of the pipeline, namely that piped gas would be $4-$5/mmbtu cheaper than LNG gas – i.e.more than half as cheap as the latter. Significant economic advantage but still doesnt make sense, at least in the near term, for the reasons outlined by you.

  2. Get an insurance company to evaluate the risk of the TAPI pipeline. The premium will tell us all we need to know.

  3. Totally agree with you. LN terminals would be a far better idea given the hugely lower political risks and the supply diversity that they allow. Wonder if there have been any feasibiity studies on Turkmenistan China India pipeline. Chine will eventually be a major supplier of energy to India.

  4. Nitin,

    We’ve discussed this before, but I am repeating my points:

    – I can understand skepticism over whether such an ambitious project can take off or be executed, given the region’s general turbulence and sensitivities.

    – Where I don’t agree with you is when you state that it carries serious risks for India. In this case, we have very little to lose, but plenty to gain if the pipeline materializes. India is not investing any amount by way of capital costs upfront. What we are committing now is an offtake of gas at a certain price, payment for which will include transit fees for Pakistan and will need to be paid as and when the gas is consumed. India needs to invest in a small length of pipeline within the country, to hook up with TAPI at the Indo-Pak border. This can be done after we are convinced that TAPI line is laid and visible for a substantial distance.

    – This will give us access to Central Asian resources and will add another source for us. This will only cater to part of our requirement. We will still need the LNG terminals in ports as you have mentioned. These are not mutually exclusive. Note that current cost of LNG is higher than expected rate from TAPI. ( But LNG is expected to cool off once the American gas comes into the market)

    – If Pakistan chokes the gas supply to us or sabotages the pipeline, they’ll lose the transit fees, and also will not get the gas for their own use. We won’t suffer any losses. If investments are made within our borders on industries that depend on this gas, we’ll have to provide back-up from LNG through the national gas grid. This has to be done anyway.

    – Thus there’s a good upside potential with a very low flipside. What we should not do is stand guarantor for the security of the pipeline outside India , to ADB or other lenders. GAIL has been toying with the idea of putting in a small equity. This can also be avoided.

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