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Tuesday, January 09, 2007

Why India's import pipelines have remained pipe dreams?

By Bhamy V. Shenoy

In less than 10 years from conceptualisation to start-up, the Baku-Tbilisi-Ceyhan Oil Pipeline of 1,760 km and the Shah Deniz Gas Pipeline of about 1,000 km have been built in the Caucasus. In India, for more than 20 years we have been talking about gas pipelines from Qatar, Iran, Turkmenistan, Myanmar and Bangladesh. Not one has been built. Not even one is on the drawing board.

Millions of rupees have been spent on endless number of feasibility studies. Even more important, precious time to diversify energy sources for national security has been lost. India should be able to learn from the experience of building these pipelines in the Caucasus.

As the West learnt that there was billions of oil to be exploited beneath Caspian Sea, a New Great Game started.

The old Great Game played in Central Asia was to get access and rule India. The New Great Game was to divert the black gold to Western markets avoiding Russian territory and Iran.

There were many complications in the development of an oil pipeline to transport oil from Azerbaijani section of Caspian Sea to the market. The shortest pipeline would have been to build a pipeline through Iran. Because of the US trade embargo, it was ruled out.

The second would have been to expand the existing pipeline through Russian territory and move crude oil over the Black Sea.

That would have crowded narrow Bosphorous, which was already congested. The third alternative would have been to build a pipeline from Azerbaijan to Armenia to Turkish Mediterranean port of Ceyhan.

Since Turkey and Armenia had the historical baggage of genocide of Armenians by Turkey, that was ruled out. That left the only other alternative of constructing a pipeline from Baku in Azerbaijan to Tbilisi in Georgia and Ceyhan in Turkey.

Since this pipeline had to be built over the mountains at an altitude of 2,930m and also environmentally sensitive area of Borjomi where Georgia's famous mineral water springs exist, many experts used to claim that constructing a pipeline was technically not possible.

There were also several political problems.

Russia wanted Caspian oil to move through its territory for geopolitical reasons. The US and European Union (EU) wanted to ensure that crude oil does not move through any state controlled by or friendly with Russia.

There were doubts about political stability of Georgia. Since the pipeline in Georgia is buried close to Armenia and in Turkey close to Kurdish area, there is always the potential of sabotage.

People in Georgia are very poor and there is every likelihood of oil being stolen.

In fact today, there are many instances of oil pilferage in Georgia from another smaller pipeline from Baku to Supsa on the Black Sea.

There were 11 oil companies investing in the construction of the pipeline.

Some of them like BP, Total and Statoil with deep pockets could easily finance the full amount of $3.6 billion. Still they wanted to borrow money from the World Bank, EBRD and other private banks to ensure smooth operations and avoid any political interference.

International NGOs were also involved to ensure social justice to the poor living along the pipeline route both in Georgia and Azerbaijan. Protests by environmental NGOs were fierce throughout the construction of the pipeline despite all the precautions taken by the lead company BP. As a consultant to Georgian government I was involved in some of these discussions.

Despite all the obstacles, this historical oil pipeline was completed in 2005 and started to function this year.

Parallel to the route of oil pipeline, another gas pipeline called Shah Deniz gas pipeline is being constructed and will be ready before the end of this year. This must be a record for the oil industry.

After finding gas reserves in 1999, gas production will start flowing within seven years to its market in Georgia and Turkey.

Countries like Qatar, Iran and Turkmenistan surround India with huge gas reserves on the west and Bangladesh and Myanmar on the east.

Many MOUs have been signed with each of these countries for buying gas. But no project has materialised so far. Like in the case of BTC and Shah Deniz, the US has been involved with Bangladesh pipeline, but not in an active way.

For the Caucasus pipeline, the US even created a special office to promote these pipelines.

Private companies like in the case of BTC and Shah Deniz mostly own the gas reserves to the east of India.

But what is missing is some institution like the US government to give not just the political support but also financial backing.

Though it had the need for its own gas reserves, Azerbaijan did not like to keep them for its own use unlike Bangladesh. Also, the Bangladesh politics is preventing signing any kind of contract with India to sell its own gas reserves. It is also not allowing transit routes to Myanmar gas.

Problems are of different kind on the western front.

Laying pipeline from gas rich Qatar to India is very expensive economically. Unlike the pipelines in Caucasus, protecting the pipeline under the sea from any potential sabotage is not easy.

Another factor is that the government companies involved on both sides do not have the entrepreneurial background to find solutions to several problems that will come up on a complex project like this.

In BTC and Shah Deniz, BP and other private oil companies were very keen on monetising their oil and gas reserves. It is missing in the case of Qatar, Iran and Turkmenistan. It is the national oil companies, which are involved on both the sides with bureaucrats trying to negotiate the contractual terms.

It is high time India tries to bring in the talents of private oil companies to negotiate by giving them a chance to invest in the project. Otherwise our pipelines will remain pipe dreams for years to come.

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