TAPI pipeline: Project participants, ADB fail to agree on advisory fee

Bank cautions project cost can rise past $10b from estimates of $7.5b.

ISLAMABAD:

The countries participating in the TAPI gas pipeline and the Asian Development Bank (ADB) are locked in a row over fee for hiring the bank as a transaction adviser to raise funds for the project, the cost of which may cross $10 billion against previous estimates of $7.5 billion.

In a fresh development, Kabul has also signed a gas sales and purchase agreement to become part of the Turkmenistan, Afghanistan, Pakistan and India (TAPI) gas pipeline. Earlier, it had backed out of the project, saying it was only interested in transit fee.

These developments took place in Ashgabat, Turkmenistan in the first week of July.

In a meeting of the steering committee on TAPI gas pipeline, the ADB cautioned the participating countries that the project cost would rise past $10 billion because of delay in initiating work compared to previous estimates of $7.5 billion, say sources.

The four countries also negotiated a deal for hiring the ADB as transaction adviser and the bank demanded $100 million as fee and $50,000 per month as retaining cost of the project. However, all the countries termed the fee too high and asked the ADB to cut it to $30 million. However, the bank agreed to reduce the fee to $50 million.

“This issue is yet to be settled with the ADB which will be hired as transaction adviser to generate all the funds for the project,” an official said, adding the participating countries also agreed to contribute $5 million as seed money to the TAPI Company.

Earlier, Afghanistan had refused to contribute funds, saying it did not want to consume gas. Now, it signed an agreement with Turkmenistan for import of 500 million cubic feet per day (mmcfd) of gas during talks held in the first week of July and would contribute $5 million to the company, the official said.

During the talks, the issue of security in Afghanistan also came up for discussion. Kabul assured the stakeholders that it would make adequate arrangements to ensure security despite the Taliban insurgency.

The United States has been pushing Islamabad to go ahead with the TAPI pipeline and shelve the Iran-Pakistan (IP) pipeline project because of a standoff with Tehran over its alleged nuclear programme.

However, the new PML-N government has staved off the pressure and assured Iran that work on the IP project would go on according to the schedule, dealing a blow to US efforts.

According to the original plan, Pakistan will get 1.365 billion cubic feet of gas per day (bcfd) from Turkmenistan under the TAPI project, India will also receive the same 1.365 bcfd and Afghanistan will get 0.5 bcfd.

Turkmenistan will export natural gas through a 1,800km pipeline that will start from Turkmenistan and reach India after passing through Afghanistan and Pakistan.

Pakistan and India have already signed gas sale and purchase agreements and efforts are under way to attract potential investors for financing the project.

Road shows

Representatives of the ADB, Turkmenistan, Afghanistan, Pakistan and India took part in road shows organised by the bank in September last year in major financial hubs of Singapore, New York and London to look for potential project sponsors.

According to the Ministry of Petroleum and Natural Resources, in the Singapore road show, renowned companies and financial institutions such as Petronas, Temasek and the State Bank of India participated.

They were given a comprehensive presentation on the structure of the project, supply source and market demand in Afghanistan, Pakistan and India.

The New York event was attended by leading international oil companies such as Chevron and ExxonMobil and major financial institutions like Citigroup and the US Export-Import Bank. All participants expressed keen interest in the project.

In the London road show, TAPI project representatives met with officials of British Petroleum, Shell, British Gas and Morgan Stanley.

Published in The Express Tribune, July 24^th, 2013.

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