VZCZCXRO3517
PP RUEHAG RUEHBI RUEHCI RUEHLH RUEHPW RUEHROV
DE RUEHAH #1443/01 3101137
ZNY CCCCC ZZH
P 051137Z NOV 08
FM AMEMBASSY ASHGABAT
TO RUEHC/SECSTATE WASHDC PRIORITY 1806
INFO RUCNCLS/ALL SOUTH AND CENTRAL ASIA COLLECTIVE
RUCNCIS/CIS COLLECTIVE
RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHAK/AMEMBASSY ANKARA 4460
RUEHBJ/AMEMBASSY BEIJING 2272
RUEHKO/AMEMBASSY TOKYO 2137
RUEHIT/AMCONSUL ISTANBUL 2708
RHEHNSC/NSC WASHDC
RHMFISS/CDR USCENTCOM MACDILL AFB FL
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RUEKJCS/JOINT STAFF WASHDC
RUEKJCS/SECDEF WASHINGTON DC
RUEHVEN/USMISSION USOSCE 3027

C O N F I D E N T I A L SECTION 01 OF 02 ASHGABAT 001443 
 
SENSITIVE 
SIPDIS 
 
STATE FOR SCA/CEN, EEB 
 
E.O. 12958: DECL: 11/04/2018 
TAGS: EPET PREL ADB ZK XD TX
SUBJECT: TURKMENISTAN: OBSTACLES APLENTY FOR TAPI PIPELINE 
PROJECT 
 
Classified By: Charge d'Affaires a.i. Sylvia Reed Curran for reasons 1. 
4 (B) and (D). 
 
¶1.  (C) SUMMARY:  Progress on the Asian Development Bank's 
("ADB") proposed gas pipeline from Turkmenistan to India is 
beset by challenges as the proposed project enters its sixth 
year.  Working group meetings to finalize key agreements have 
been repeatedly postponed.  From the Turkmen side, 
authorization to sign agreements has been slow in coming. 
Pricing will be negotiated on a bilateral basis and 
significant differences remain.  It is unclear whether the 
next round of meetings planned for December will take place 
due to an inability to finalize key agreements.  Besides 
financial and security challenges beyond Turkmenistan's 
border, the project's prospects are tied to Turkmenistan's 
ability to fill the pipeline with gas.  A ready supply in 
need of a market could go far in eliminating at least the 
bureaucratic delays that beleaguer the project.  END SUMMARY. 
 
¶2.  (C) ADB's Ashgabat-based liaison officer Ayna Kekilova 
recently provided an update on the status of the 
Turkmenistan, Afghanistan, Pakistan and India (TAPI) natural 
gas pipeline project.  The initial project proposal was 
prepared in 2002 and the project feasibility study was 
completed in 2004.  Since that time, ten ministerial and 
higher-level steering committee meetings have taken place, 
most recently in Islamabad in April 2008. 
 
TECHNICAL WORKING GROUP MEETINGS DELAYED 
 
¶3.  (C) In addition, a TAPI pipeline technical working group 
was established.  It has met three times, twice in Ashgabat 
in April 2007 and September 2008.  It also met in Islamabad 
in April immediately before the steering committee meeting. 
Kekilova explained that the first working group meeting took 
one year to arrange.  When the Turkmen government learned 
that ADB did not plan to attend the meeting, it threatened to 
cancel the event, insisting that ADB be present and 
facilitate the meeting.  The GOTX has taken the position that 
it will not discuss the TAPI project multilaterally without 
an ADB presence.  A fourth working group meeting was planned 
for October in New Delhi, but it was delayed due to a lack of 
progress on outstanding issues.  ADB would like the meeting 
to take place in November in order to precede the next 
steering committee meeting, at which the participants are 
supposed to sign off on the group's work. 
 
¶4.  (C) Current sticking points for further progress are: a) 
the signing of the new Heads of Agreement, which has been 
amended to reflect India's participation in the project; and 
b) conclusion of a gas sales and purchase agreement.  The 
Heads of Agreement designates the responsibilities of the 
project partners.  It was planned that the Heads of Agreement 
would be signed during the September working group meeting. 
Turkmen officials at the working group had not received 
authorization to sign, but expected it shortly and urged the 
others to sign.  Afghanistan and Pakistan officials did sign, 
but India decided to wait until the Turkmen would also sign. 
Meanwhile, the Turkmen have still not signed.  Kekilova 
explained that authorization is held up at the Cabinet of 
Ministers level.  She added that she has difficulty 
explaining to ADB headquarters that no GOTX minister is 
authorized to make the decision, but instead that it has to 
go to "the very top level."  Kekilova said the September 
working group meeting was also delayed one month because the 
necessary paperwork had to go to President Berdimuhamedov. 
 
SIGNIFICANT DIFFERENCES IN PRICING 
 
¶5.  (C) Concerning the gas sales and purchase agreement, 
Kekilova explained that the Turkmen government wants this 
agreement to be a general document, after which it will 
negotiate firm prices bilaterally with each partner. 
Initially, ADB had proposed a lengthy, detailed sales 
 
ASHGABAT 00001443  002 OF 002 
 
 
agreement that was intended to satisfy potential investors. 
The Turkmen side responded that the agreement could be a 
maximum of 30-40 pages and would serve as the basis for the 
bilateral sales contracts.  The GOTX provided a template 
based on its agreements with Russia and China.  According to 
Kekilova, the Turkmen Ministry of Oil and Gas has conducted 
bilateral negotiations with all three countries concerning 
pricing and proposed a formula similar to what it uQ with 
Russia.  Agreement has been reached with Afghanistan, and is 
becoming closer with Pakistan as the two sides agree on some 
aspects.  India, however, has proposed a completely different 
pricing structure that takes into account coal and LNG 
prices.  Kekilova expressed doubt over whether an agreement 
could be reached with India because of their different 
approaches to a pricing structure. 
 
¶6.  (C) The cost of the project was originally estimated in 
the range of USD 2 - 2.5 billion in the 2004 feasibility 
study.  Once all necessary agreements are reached between the 
cooperating countries, theQign and construction phase 
would take four years.  The project is supposed to be 
connectedQh the Dauletabad gas field in Turkmenistan.  The 
Turkmen government has not provided an audit of reserves to 
all parties that shows proven reserves are sufficient for the 
agreement.  However, it has expressed a willingness to use 
all its reserves, not just the Dauletabad field.  Kekilova 
mentioned that a risk assessment was included as part of the 
feasibility study, but given current conditions in 
Afghanistan and Pakistan, a new risk assessment will need to 
be done.  She also referred to the Turkmen government's 
position that they will sell their gas at their border and 
will construct the pipeline within their territory, but that 
they are not concerned about issues beyond their border. 
 
PARTIES COMMITTED DESPITE DIFFICULTIES 
 
¶7.  (C) Kekilova said ADB has spent about USD four million on 
the project to date, including more than USD one million for 
the feasibility study, and wants to see it built.  She also 
described the Turkmen position that they will build the 
pipeline up to their border with Afghanistan, sell the gas at 
the border, and don't care about what happens beyond the 
border.  When ADB has asked officials at TurkmenGas and the 
Ministry of Oil and Gas whether they want the TAPI pipeline, 
they say they are ready to sign.  However, Kekilova indicated 
the obstacle is the lack of a decision from President 
Berdimuhamedov and conveyed through Deputy Chairman for Oil 
and Gas Tagiyev. 
 
¶8.  (C) COMMENT:  Obstacles clearly abound on the path ahead 
for the TAPI pipeline, not the least of which is the 
sluggishness of the Turkmen government's bureaucracy.  As 
long as Turkmenistan's gas production remains inadequate to 
supply its domestic needs plus current commitments to Russia, 
China and Iran, it's not clear that the Turkmen have much 
incentive to move ahead quickly.  In addition, security and 
financing issues wholly beyond Turkmenistan's border will 
need to be addressed.  Since ADB's commitment remains firm, 
it's likely that the partners will continue to negotiate in 
fits and starts as they have to date, and the project will 
remain "proposed."  That said, the development of excess gas 
production capacityQt could fill the pipeline would be a 
significant motivator for the Turkmen government to conclude 
agreements with its TAPI pipeline partners.  END COMMENT. 
CURRAN