Monday, September 22, 2014

Drew EGC Report

Who Will Be Tapped By TAPI

Which international companies will be tapped by the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline to help its consortium finance and build a $7.6 billion 1,800 kilometer pipeline through war zones -- if the project ever breaks ground? Severe doubts about security prompt analyst James J. Coyle to say (1)  likely construction will not be started until after 2014, when the TAPI parties will see how stable the situation is. Some analysts believe that the Taliban may share power or will be so busy fighting their rivals to keep the territories they already hold that they will not  immediately attack the pipeline.

But this uncertainty has prompted another expert, Alexandros Petersen, writing in Foreign Policy, to urge on the contrary that TAPI construction should begin immediately (2) while US troops are still there back-stopping the Afghan National Army, as feasibility studies, notably by the Asian Development Bank, have been completed -- “if the consortium does not concentrate on quickly constructing a commercially-oriented pipeline on a manageable scale, it risks repeating the mistakes of the now infamous Nabucco pipeline,” he cautions.

After the Soviet military departed Afghanistan in 1989, the Soviet-backed Kabul government lasted about three years, but some UN diplomats believe that government of President Hamid Karzai may last far less. And often those looking for historical precedents point to the experience of Unocal, later merged with Chevron, which tried to negotiate a pipeline with the Taliban but was forced to scrap its plans. 

But like other oil majors, Chevron takes the long view. It set up an office in Turkmenistan in 2007 and has been patiently meeting with Turkmen officials ever since; in 2010,  President Gurbanguly Berdymukhamedov even promised Chevron an offshore drilling permit in the Caspian Sea which has still not materialized. Chevron keeps relations positive by offering technical assistance, teaming up with USAID to provide management and accounting training. Chevron also expressed interest in bidding for the Afghan-Tajik Basin oil auction in Afghanistan back in March, Bloomberg News reported. But last week Central Asian News Service said Chevron was not on the short list of eight companies (3) chosen to participate in that tender.

In June, Chevron’s Executive Vice President of Business Development Jay Pryor visited Ashgabat and met with Berdymukhamedov, but has often occurred with such meetings, while Pryor eagerly reiterated that his company was willing to help Turkmenistan develop its hydrocarbons and bring them to international markets, the Turkmen leader was by contrast positive but non-committal, the Turkmen state media reported.

At a June cabinet meeting Yagshegeldy Kakayev, Turkmenistan’s deputy prime minister and head of the Presidential State Agency for Management and Use of Hydrocarbon Resources, stressed the importance of foreign investment but singled out the Chinese National Petroleum Company, Petronas, and Mitro International Limited, noting three geological exploration projects and five extraction projects as well as efforts to boost gas refinery capacity.

In a speech July 12 in Washington at a conference jointly sponsored by the Carnegie Endowment for International Peace and the Konrad Adenauer Foundation, Assistant Secretary of State for South and Central Asian Affairs Robert O. Blake, Jr. mentioned TAPI last, as merely making “progress”. He focused on the US pledge to continue to support the Afghan National Army after NATO withdraws most of its troops in 2014 , but it is not clear which uniformed Afghan force might actually guard the pipeline or when construction could begin.

The proof will be in how the bids turn out; globaltenders.com indicates (4) three tenders currently for Turkmenistan:  development of the South Yoloten field with a deadline of January 2013; construction of TAPI with a December 2012 deadline, and investment in the Trans-Caspian Pipeline with a September 2012 deadline although this will likely slip with the recent flare-up of the long-standing dispute between Azerbaijan and Turkmenistan.

So far,  Ashgabat has given every indication that it does not want Russia’s Gazprom involved in TAPI, and has been publicly irritated when Moscow jumped the gun . Yet last week a 15-member Russian delegation was in Islamabad for talks on TAPI seemingly in circumvention of Turkmenistan.  A Pakistani government source said that Russia would be invited to build TAPI in a special government-to-government no-bid agreement, Express Tribune reported.  A memorandum of understanding is still to be signed in “two or three months,” however, and a “third meeting of the joint working group” won’t take place until 2013, indicating the usual delays. Russia is willing to help Pakistan with the Iran-Pakistan pipeline which the US vigorously opposes, so that may make the deal more attractive. Given that Turkmenistan is the source for the gas, Pakistan is unlikely to buck its will if Ashgabat is adamantly opposed to Russian involvement, yet on the other hand, the Turkmen leadership needs TAPI to diversify away from its original diversification from Russia -- the pipeline to China .

Industry analysts say that Chevron or other Western companies would not likely become involved in TAPI unless they could first get an upstream position, still  not in place. A senior State Department official declined to confirm that Chevron or ExxonMobil were entering tenders, although he described the prospects for American companies around TAPI as “promising”.

State Department cables published from WikiLeaks give some insights into the issues that can prevent closure on these deals.

A dispatch dated April 11, 2008 (5) recounts how Bayrammurat Muradov, then head of the State Hydrocarbons Agency complained to the US of ostensible lack of transparency from Chevron because it didn’t want to leave proprietary information behind; Chevron country manager Doug Uchikura later told the embassy officer the technological information was “business confidential."

Turkmenistan, a highly closed society where little is divulged about decision-making, appeared to turn the tables on the American company: “If Chevron withholds information from the government now, it could become even worse if/when the two become partners."  Uchikura countered that Muradov was merely avoiding a good-faith discussion of their bid.

An earlier cable on March 6, 2008 (6) indicated that Turkmenistan had also felt burnt on past ventures, such as when Burren Energy sold out to Italy's ENI without notifying the Turkmen government, and therefore wanted first right of refusal in the event of an ownership change. Muradov outlined two competing camps in the Turkmen leadership: those who favored foreign involvement and those who strongly opposed it.

By a September 3, 2008 cable (7), the Embassy was scrambling to understand why Muradov was fired and Kakayev promoted, reasoning that Kakayev was more of a seasoned technocrat than Muradov, who implied his country was in over its head and needed training to deal with wily Western oil companies.

Last week, the Pakistani media floated the news (8) based on unidentified sources that the US Ex-Im Bank and the Overseas Private Investment Corporation are supposedly willing to finance TAPI (9). Yet US officials have not confirmed this claim, also made last year. With Russia helping Pakistan with IP and trying to get into TAPI via Islamabad, Washington may not be so forthcoming. Nevertheless, US companies, Gazprom and India’s GAIL are likely to be courted by ADB in its forthcoming road shows which will be closely watched. (10)

By Catherine A. Fitzpatrick

 

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