EurasiaNet Business & Economics - Afghanistan Eyes a Pipeline, But Prospects Look Dim

BUSINESS & ECONOMICS

AFGHANISTAN EYES A PIPELINE, BUT PROSPECTS LOOK DIM
Halima Kazem 6/06/02

With American-led military operations diminishing in Afghanistan and foreign aid taking a long time to flow, the country is looking for ways to fuel a struggling economy. Under interim government Chairman Hamid Karzai, Afghanistan has revived an old hope. It is officially seeking to build a pipeline that would take Turkmen oil and gas to India via Pakistan and Afghanistan.

Karzai traveled to Islamabad on May 30 to meet with Pakistani President Pervez Musharraf and Turkmen President Saparmyrat Niyazov. The three leaders agreed only to pursue financiers for the pipeline project. They could not promise to succeed where others with deeper pockets have failed. Karzai’s "pipeline of peace" would essentially reassemble the CentGas Consortium, a $2 billion project led by Houston oil giant Unocal in the mid-1990s. If it develops, it could bring in hundreds of millions of dollars to Afghanistan, which desperately needs funds for reconstruction. However, regional conditions have changed significantly since Unocal dissolved the CentGas Consortium in 1998. Beyond Afghanistan’s devastation, Pakistan’s energy needs and its relations to India have changed, making a trans-Afghanistan pipeline largely a fantasy.

For one thing, Western energy companies face many opportunities to invest their money elsewhere. Azerbaijan and Kazakhstan, which have somewhat more stable structures than Afghanistan, have raised millions in oil and gas investments. Competition for foreign investment is tight even with countries with stable central governments. So it may be that no multinational company has publicly shown interest in reviving Unocal’s pipeline plans because those plans would simply not pan out economically. "There is no new interest right now in the area," said Leonard Coburn, Director of the Office of Newly Independent States, Russian and Middle Eastern Affairs at the US Department of Energy. "ExxonMobil is pulling out of Turkmenistan. They didn’t find anything and they feel that they cannot operate there. Chevron Texaco has not really looked into Turkmenistan because they are pretty tied up in Pakistan and Azerbaijan,"

Although still favored by the participant countries to revive the project, Unocal Spokesperson Terry Covington says that the company does not have any plans or interest in another pipeline project through Afghanistan. She says that after the company withdrew from the CentGas consortium in 1998, they invested their capital in other parts of the world, specifically in Southeast Asia. "We can’t make any decisions based on a snapshot of a country," Covington told EurasiaNet. "There are several things we look for before we invest in a country: an internationally recognized government, peace and stability, and social [standards]."

Karzai should be familiar with Unocal; he worked as a consultant to the company in the �90s. Over the past six months, the charismatic Karzai has been traveling to neighboring countries trying to rally support for the pipeline. In Niyazov and Musharraf, he has found two heads of state who say they are in favor of the pipeline project. But Coburn says that any company that goes into Afghanistan needs more reassurance and has to know that the right type of security will be provided to safeguard their investment. Afghanistan, which is beginning a grand legislative council called a Loya Jirga on June 10, still has no established government. When the Loya Jirga appoints a two-year transitional government, the country will still have to establish and figure out corporate and securities law. "From an emerging markets point of view, Afghanistan has a long ways to travel," said Peter Bassett, Investment Manager for Brunswick Capital Management, a global investment firm based in London.

Moreover, demand for trans-Afghan gas would probably only come from India � itself a tough market to gauge. Pakistan has developed enough internal gas reserves to remain self-sufficient until 2025, said Julian Lee, Senior Analyst for the Centre of Global Energy Studies in London. Pakistan’s reliance on imported oil could boost the trans-Afghanistan pipeline, but underlying power struggles between Pakistan and Afghanistan are still a major barrier for a pipeline partnership. "Historically Pakistan has always meddled in Afghanistan’s affairs and has never wanted to give Afghanistan access to its waters. It’s a way of keeping Afghanistan dependent on Pakistan," said Farhad Ahad, a member of the Institute for Afghan Studies. If Pakistan were to commit to a trans-Afghanistan pipeline, some suggest, it would be to placate the United States by avoiding a pipeline relationship with Iran. But David Goldwyn, Former United States Assistant Secretary of Energy for International Affairs, calls the chances of that happening anytime soon very slim.

That leaves India as a customer. But India remains reluctant to depend on Pakistan, its traditional rival, which would have no incentive to ensure smooth delivery through its portion of the pipeline. [See related EurasiaNet story]. "From India’s side the question is �How do insure the security of this project?" said Jyoti Sagar, founder of Sagar and Associates, a New Delhi law firm specializing in India’s energy sector. Indian oil demand is expected to grow 6-6.5 percent annually from 2001. Natural gas demand will surge with 7.5 million metric tons of LNG per year to be imported by 2005. This combined position will make India one of the world’s largest consumers of oil and gas. But Sagar says India is looking to neighboring Bangladesh and Myanmar for cheap natural gas imports.

In the end, Afghanistan’s pipeline dreams may hinge on simple economics. But even if the political situations in the region could be worked out, many analysts say the pipeline’s rate of return would not be very high. "A large multinational company would get maybe a 15 to 20 percent return. This is not much compared to the geo-political risk involved," said Hurst Groves, Director of Columbia University’s Center for Energy Studies.

Oil analysts uniformly deem a trans-Afghanistan pipeline largely out of reach for now. "Until either Pakistan requires imported gas, or Pakistan and India trust each other sufficiently to allow India to source gas imports via its neighbor," says Lee, Afghanistan will need to find another means of restoring its tattered economy.

Editor�s Note: Halima Kazem is a former documentary producer for MSNBC and has written for the San Francisco Chronicle, among other publications. She is reporting for EurasiaNet from Afghanistan’s Emergency Loya Jirga.

The Central Eurasia Project aims, through its website, meetings, papers, and grants, to foster a more informed debate about the social, political and economic developments of the Caucasus and Central Asia. It is a program of the Open Society Institute-New York. The Open Society Institute-New York is a private operating and grantmaking foundation that promotes the development of open societies around the world by supporting educational, social, and legal reform, and by encouraging alternative approaches to complex and controversial issues.

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