02 November 2004

Inside Kazakhstan III: Those with pipelines call the tune

2 November 2004
The Hindu

Those with pipelines call the tune

By Siddharth Varadarajan Almaty: If there is one issue which is the source of even greater heartburn than the battle for control of the most lucrative oil fields of Central Asia, it is the struggle to decide how the region's vast reserves of energy will be transported out to the wider world. And as with most things in the current global system, it is geopolitics — meaning the sheer size of the military and political footprint of the United States — which is in command, relegating economics and rationality to the background.

Kazakhstan lies in the centre of Asia and is much closer to the energy-hungry markets of the continent such as China and India than to Europe or North America. ``There are four routes through which we can export our oil and gas'', says Kamal Burkhanov, head of the Institute of Russia and China and an adviser to the President, Nursultan Nazarbaev, on strategic affairs. ``First, a pipeline through Iran to the Persian Gulf either via Turkmenistan or the Caspian Sea; second, the Atasu pipeline to China; third, the Caspian Pipeline Consortium (CPC) through Russia and its Black Sea port of Novorossisysk; and fourth, the Baku-Tbilisi-Ceyhan (BTC) route'', where a pipeline is planned from Azerbaijan to the Turkish Mediterranean coast.

``The Americans want Baku-Ceyhan and are using all their influence in the region'', he says. ``And they are determined to ensure the Iran route doesn't develop''. According to Mr. Burkhanov, there isn't enough oil in the Caspian continental shelf to warrant investment in all routes, though the Kazakh Government backs all four. ``In my view, there is no doubt the most beneficial for Kazakhstan is the Iranian one, because the royalty costs, at around $1 out of $10 are far lower than the $3-5 we would pay through the CPC or BTC''. But though project work has begun for the other three pipelines, there has been no investment in the Iran option despite India and Japan supporting Teheran, at least in principle. Thus, the Kazakhs today limit themselves to selling small quantities of oil through Iran, mainly on a swap basis.

All this might change if the new resolve with which the External Affairs Minister, Natwar Singh, says India wants to develop energy relations with Kazakhstan and Central Asia is actualised quickly. The fact is that despite the grandiose declarations of the Vajpayee Government, Indian policy towards Central Asia and Iran remained hostage all these years to the `strategic partnership' with Washington — which did not wish to see New Delhi getting involved in the Iranian energy sector — and the prolonged, self-defeating stand-off with Islamabad, which meant a pipeline traversing Pakistani territory was considered taboo.

Today, the Manmohan Singh Government is working on the assumption that an Iran-Pakistan-India pipeline can be a win-win project for all the countries involved. With this change in mindset, the key to accessing Central Asian oil and gas is also within its grasp, since Kazakhstan, Turkmenistan and Iran all favour the construction of pipelines from the Caspian region heading south. ``So far, the Indians have lost out'', says Mr. Burkhanov, ``but with Japan supporting the Iranian project, India should get involved''.

For Kazakh analysts, Indian engagement is not just good for business but a vital element for strategic stability in Central Asia. ``Stability in our region is based on Russia in the north, the U.S. and European Union in the West, China in the east and India in the south'', says Bulat Sultanov of the Institute of World Economy and Policy. ``It is thus very important for us to have close relations with India".

``The pipeline to China was once thought of as utopian'', he says. ``But it will be completed by December 2005. In the same way, why can't we think of a fantastic project of a pipeline from Kazakhstan to India through Turkmenistan, Afghanistan and Pakistan?''

In fact, there is already a trilateral agreement for the Turkmen-Afghan-Pakistan (TAP) gas pipeline from Daulatabad in Turkmenistan to Herat and then Multan. The projected cost is $2.5 billion and the capacity will be 70 billion cubic feet of gas per annum. Adding India as a spur from Multan should not be difficult. What is needed is for India to think boldly and develop big plans for its Asian neighbourhood. In the energy business, delays can be costly. Last week, even as India continues thinking about what its negotiating strategy with Pakistan should be over the proposed Iran-India pipeline, China went and signed a mammoth death for the purchase of Iranian liquefied natural gas (LNG). The deal involves the annual purchase of 10 million tonnes per year (75 million barrels) for 25 years. The total size of the deal: $100 billion.

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