Transit fee issue with Afghanistan and Pakistan resolved

In what could prove to be a major corridor for energy sourcing in the future, the Union Cabinet, on Thursday, approved the signing of the agreement for buying gas from Turkmenistan through the $7.6 billion Turkmenistan-Aghanistan-Pakistan-India (TAPI) pipeline.

The approval has given a concrete shape to the pipeline which could prove to be a big boost to the relations between India and Pakistan and bring good news to the region.

The contentious issue of transit fee was also resolved with India agreeing to pay both Afghanistan and Pakistan a transit fee of $0.50 per million metric British thermal unit (mmBtu) for allowing passage of gas through their respective territories. This was one of the major points that had been a bone of contention between the three neighbouring countries.

The Cabinet approved signing of the Gas Sale and Purchase Agreement (GSPA), officials in the Petroleum and Natural Gas Ministry said.

The Petroleum and Natural Gas Minister, Jaipal Reddy, is likely to visit Turkmenistan on May 23-24 for the signing of GSPA. India will pay a price linked to fuel oil for the natural gas, which, at current oil prices, translates into a rate of $8-10 per mmBtu. India would also pay a transportation charge for wheeling of natural gas from 1,735-km long pipeline, which is likely to be operational by 2016.

The delivered price of gas on the Indian border works out to $10-12 per mmBtu as compared to $4.20 per mmBtu price of domestic gas and $16 per mmBtu rate of gas imported in ships in its liquid form (LNG). The pipeline would carry 90 million metric standard cubic metres per day (mmscmd) of gas. Of which, 14 mmscmd would be bought by Afghanistan and 38 mmscmd each would be for India and Pakistan.

The pipeline will run from Turkmenistan's Yoloten-Osman gas field to Herat and Kandahar province of Afghanistan, before entering Pakistan. In Pakistan, it will reach Multan via Quetta before ending at Fazilka Punjab in India.

All the three nations had met in Islamabad in April to work out the issue of transit fee but no breakthrough could be achieved as India showed its reluctance to accept and pay the transit fee being asked by Afghanistan. During the trilateral talks, India had declined to pay the 50 cents per mmBtu as transit fee for the gas.

The contract price of TAPI gas is linked to a formula which contains indices based on fuel basket and other indices which are not as volatile as crude oil. The U.S. is backing the pipeline as an alternative to the India-Pakistan-Iran (IPI) pipeline that has been stalled for quite some time now due to U.S. pressure on India and Pakistan not to go ahead with the project.

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