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| April 14, 2006 | Friday | Rabi-ul-Awwal 15, 1427 |
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Need for restraint
Petrol pump closures
Energy cooperation prospects
THE dispute between the Ukraine and Russia on the pricing of gas supplied by Russia to the Ukraine was settled early this year after causing some anxiety in Europe about the reliability of Russia as a supplier.
VANDALISM and acts of arson were not the only unfortunate occurrences in the wake of Tuesday’s bomb blast in Karachi’s Nishtar park; another more unfortunate development is the politicisation of what obviously was a fiendish act of terror. Many political parties, including the party whose leadership was virtually wiped out by the blast, have held press conferences and issued statements designed to make political capital out of what indeed was one of the worst acts of terrorism of its kind in Pakistan. That the federal government has decided to deploy the army in Karachi reflects adversely on the provincial government’s ability to maintain law and order. Regrettably, the Muttahida Qaumi Movement, the MMA and the Sunni Tehrik have not bothered to wait even for an investigation to begin and have come out with accusations in a manner that is likely to worsen the breach between them and add to the tension and fear around. The Sunni Tehrik, although the major victim of Tuesday’s carnage, should have shown restraint and refrained from criticising its political opponents to let the security agencies do their job in peace and without any prejudice. On Wednesday, the ST gave a 48-hour ultimatum to the Sindh government and demanded its resignation. It said it would announce its future course of action after the deadline ended. The ST also hinted that those behind Tuesday’s massacre could be the people who were responsible for the murder of Maulana Saleem Qadri, the ST leader who was gunned down five years ago.
The MMA has called for a protest day today and demanded that the Sindh government be sacked because of what it calls a “security lapse”. The MMA and MQM have been old rivals in urban Sindh. In the last general elections and in the local body polls last year, the Jamaat-i-Islami, a major component of the MMA, lost ground to the MQM, including the mayorship of Karachi. The Sindh government is a coalition led by the Muslim League in partnership with the MQM. Thus, when the MMA speaks against the Sindh government, it basically seeks to target the MQM, its traditional rival for power in lower Sindh. As for Mr Altaf Hussain, his first statement in the wake of the blast was a sensible one. It condemned the blast, called for a three-day period of mourning and said the explosion was a conspiracy to destroy Karachi’s peace. In his statement the next day, however, the MQM chief changed his tone and said “a particular extremist group” had caused the carnage. While Mr Hussain avoided naming the party, a statement issued from Nine Zero, the MQM headquarters, blamed the Jamaat-i-Islami by name for Tuesday’s atrocity.
Taken together, the three political parties and some sections of the electronic media have not helped matters. While grief and shock over the tragedy are natural, the immediate task before the government and all political parties should be to counsel restraint so as to bring tensions down. Mud-slinging and irresponsible accusations without any shred of evidence will only add to mutual apathy and perhaps lead to more violence. Some sections of the electronic media reported the tragedy quite well, but they continued to telecast even the next day the scenes of the tragedy and the mayhem that followed. That kept the sense of crisis alive, though what the people of the metropolis wanted was a return to normal life.
IT IS not surprising that the world has reacted so strongly and negatively to the Iranian president’s announcement of his country’s successful move to enrich uranium for nuclear fuel. Coming less than a fortnight after the UN Security Council’s presidential statement asking Tehran to freeze its uranium enrichment programme, President Ahmadinejad’s move is an act of defiance that will not win him many supporters. Even Russia and China, the two permanent members of the Security Council which have supported Iran, have been caught off guard by the Iranian disclosure. They have described the action as a move in the wrong direction. Until now Iranian policy had been widely seen as one of brinkmanship and it was hoped that the US would not push Tehran over the brink by adopting a hardline militaristic stance. But now it appears that Iran is proceeding on the path of confrontation with the US without any regard for world opinion.
What next? Diplomacy has not been fully exhausted so far. The IAEA chief, Mr Mohamed Elbaradei and his inspectors are now in Tehran. His inspectors are already there to prepare the report they have to submit to the Council on April 28 which will then decide its future line of action. With the United States keeping the world guessing on its strategy vis-a-vis Iran — will it or won’t it attack? — and Iran being equally firm, the state of international politics is marked by a sense of impending crisis. After the devastating experience of the American-imposed war in Iraq, the Middle East could do without another war in the region. But this can be averted only if Iran enters into meaningful negotiations with the IAEA. It is within its right under the NPT to enrich uranium for peaceful purposes, but very often a government has to forego a right it enjoys under international law for the sake of a political compromise that has to be made for peace and security. Post Cold War international politics is at a juncture when there are indications of multiple centres of power emerging. These could neutralise America’s hegemonic ambition which is threatening the Third World. Iran has a vital role to play in the unfolding drama — but all will be lost if it chooses the road to military confrontation.
THE closure of petrol pumps in Karachi for two days following the Nishtar Park bomb blast has compounded the miseries of the 10-million plus residents of the city. An overwhelming majority of petrol stations in the city were closed on Wednesday as well as Thursday and this has created immense hardship for citizens. One can well imagine the inconvenience this would have posed for people who needed to use their motorcycles or cars on urgent business. The handful of stations that were open had long lines of vehicles and eyewitnesses reported seeing even ambulances having to wait long hours for fuel.
On Wednesday, the day after the tragedy, pump owners said that they had voluntarily closed their facilities as a mark of respect for those who had died. They also said that when they tried to re-open their stations, the police asked them not to do so. Though no official announcement has been forthcoming on this, it will be fair to assume that the police want the stations closed either because they are often targeted during mob violence or to prevent any would-be vandals and rioters from using petrol to further their arsonist plans. Security may be a problem in sensitive areas such as M.A. Jinnah Road or the headquarters of the Sunni Tehrik but the solution is not to impose a blanket closure of all petrol stations in the city because that will not be wholly irrational. In areas where security is a problem extra police should be deployed, or if that cannot be done, the government should immediately allow the re-opening of petrol stations in the less sensitive parts of the city. There is no reason for the people of Karachi to suffer further on account of the government’s failure to curb acts of terrorism.
The solution found to the problem — a quadrupling of the gas price demanded by Russia in apparent violation of an agreement that the price of gas would be maintained at $50 per 1,000 cubic metres (mcm) until 2009 — was the setting up by Russia of a company that would supply the Ukraine with gas derived both from Russian and Central Asian sources.
Central Asian gas, primarily Turkmen but with a small Uzbek input, was priced at about $50 per mcm and given the mix would reduce the price the Ukraine would be required to pay from $230 per mcm to about $95. In Europe, the important question was how reliable the Russians would be as suppliers in the future. The Energy Charter Secretariat estimates that the share of gas in Europe’s total energy consumption, currently 40 per cent, will rise to as much as 90 per cent between 2020 and 2030 and that Russia’s share in providing this gas may rise to as much as 50 per cent since the alternative — import of LNG — would be both expensive and possibly unreliable.
Russia’s Gazprom, the largest gas producer and supplier, has seen its production plateau at about 550 billion cubic metres of gas (bcm) per day and has at the same time seen domestic de mand rise from 258 bcm in 2004 to 325 bcm in 2005. Gazprom has the choice of either increasing its own production by tapping the vast reserves that are known to exist in the Arctic fields or to use its existing pipelines to import more gas from Central Asia.
Press reports indicate that Gazprom plans to buy 9 bcm from Uzbekistan and 30 bcm from Turkmenistan in 2006. Gazprom intends increasing its purchases from Turkmenistan to 70-80 bcm a year by 2007-08. To handle this increased requirement, Gazprom is planning to expand the capacity of the Central Asia Centre pipeline, which links Turkmenistan and Russia through Uzbekistan and Kazakhstan, from the current levels of 42 bcm/year to 55 bcm/year, and is considering another project linking Central Asia and Russia with throughput capacity of 30 bcm/year.
In the meanwhile, President Niyazov of Turkmenistan has announced that he intends raising the price of gas from the current level of $65 per mcm to $100 this autumn. It is likely that even if Uzbekistan abides by the negotiated price of $60 for the current year it will ask Gazprom to pay a higher price from 2007 onwards. Gazprom has committed itself to an investment of $1.5 billion in the Uzbek energy sector and these may make Uzbekistan a much more important player in the Central Asian energy picture than it is now.
China is also looking to Central Asia to meet its burgeoning energy needs. It has made deals with Kazakhstan for an oil pipeline and will be looking to it also for further supplies both of oil and gas. Of relevance to South Asia, however, is the fact that during President Niyazov’s recent visit to China (April 2-7) a framework agreement was signed under which both sides would start work on the construction of a pipeline that would be commissioned in 2009 and transport annually 30 bcm of Turkmen gas to China.
Most importantly from the Turkmen perspective Article 4 of the agreement states that “the price for natural gas will be set at reasonable levels and on a fair basis, proceeding from the comparable international market price,” a vast improvement on the sort of deal that Turkmenistan has been getting from Russia and the Ukraine. Matching the Russian interest in Uzbekistan, China, too, has promised an investment of $600 million in exploring and exploiting energy resources.
In the pre-independence years, Turkmenistan used to produce about 90 bcm of gas annually. The latest figures indicate that in 2005 its production amounted to 63 bcm of which about 45 bcm were exported. The drop in production is due partly to the depletion of old fields but largely to the inability of the Turkmens to make fresh investments to maximize the exploitation of resources.
Turkmenistan still continues to be recognized as having the fourth largest gas deposits in the world. It is generally accepted that if adequate investment were forthcoming and if consistent policies were followed by President Niyazov, Turkmenistan could easily increase its annual output to about 150 bcm a year — enough to meet the current Russian demand, the Chinese demand and the projected South Asian demand.
What will this mean for the future and for the prospects of South Asia being able to import energy supplies from Central Asia? When the Turkmenistan-Pakistan-India pipeline was first talked about in 1991 Turkmenistan was getting $28 per mcm from the Ukraine and Russia with 50 per cent of the payment being in cash and the rest in goods. A deal with Pakistan which promised a price of $75 per mcm or more was phenomenally attractive. The Argentine company Bridas, which was seeking to develop and exploit the Daulatabad gas field, made a determined effort to push the deal through and managed to secure first from President Rabbani’s government and subsequently from the Taliban, permission for the transit through Afghanistan.
Bridas was replaced by Unocal, a US company which offered terms attractive enough to persuade President Niyazov to cancel the concession granted to Bridas and to transfer this to Unocal that expended a great deal of effort and money in order to secure Taliban permission for the transit pipeline. By all accounts an agreement was reached. Ultimately, the deal foundered because of the horrendous image the Taliban acquired but even more importantly because Bridas won a case in an American court which termed illegal the transfer of concession rights in the Daulatabad field from Bridas to Unocal.
Now the TAPS talks are continuing between the Turkmens, the Afghans and the Pakistanis with the Indians participating as observers but the situation is vastly different from the one that prevailed earlier. These countries are no longer in a buyer’s market able to take advantage of a landlocked state’s inability to market its principal resource to an international market. The international market has now moved, in a sense, to Turkmenistan’s doorstep and all the South Asians can hope for is that the Turkmens will agree to demand no more as a wellhead price than they are asking Russia to pay. This would mean that the landed price of gas (including pipeline costs and royalty payments to Afghanistan) in Pakistan would probably be about $4.5 per thousand cubic feet.
It is against this backdrop that ongoing negotiations between Iran, India and Pakistan will proceed on the pricing of Iranian gas for the Iran-Pakistan-India gas pipeline. It is, of course, unfortunate that so far neither the Indians nor the Pakistanis have been able to make the talks conditional on Iran’s commitment to a reasonable price for the gas.
Latest reports suggest that Indian efforts to link the price of natural gas to the price they have agreed to pay for LNG have been unsuccessful. There are rumours that since the LNG purchase deal has not yet been ratified by the Iranian Majlis, the Iranians are now hinting at a renegotiation of this price to bring it in line with international prices. Similarly, Pakistani efforts to suggest that the Iranian price in order to be affordable had to match the price Pakistan paid to foreign investors in its gas sector have been equally unsuccessful.
I had earlier suggested that the price should be between $2 and $2.15 per 1,000 cft when it reaches consumers in Pakistan and below $3 when it reaches consumers in India. Now it seems that the Iranians are demanding a price of $8 per 1,000 cft. The price Iran is demanding is the same that the Europeans with their vastly more developed economies are paying to the Russians and other suppliers. It can be justified on the ground that this is what the play of free market forces demands. But the truth of the matter is that free market forces are also influenced by other factors.
For the foreseeable future, Iran has little chance of accessing the lucrative European market. Its one foray in that direction has been the pipeline to Turkey. There the contracted price is believed to be $3 per mcft but the actual price paid has been about $2.05. Its other foray, a gas pipeline to Armenia which could then be used to supply Iranian gas to other Caucasian countries, has also probably been checkmated by the Russian insistence that Armenia hand over operational control of this pipeline to Gazprom in exchange for a continued supply of Russian gas at relatively subsidised prices.
Pakistan and India must continue to insist in negotiations with the Iranians and with Qatar that the benchmark wellhead price for piped gas should be no more than what Turkmenistan is now demanding from Russia — $100 per mcm or $3 per mcft with the pipeline transportation and royalty costs being added on. The range for the pipeline costs and for the royalty should be determined by what is being paid by the Dolphin pipeline for transit through the UAE to Oman.
There is resentment in Iran against India and, to a lesser extent, Europe about the manner in which the nuclear issue has been handled.
In the meanwhile, the Turkmenistan and Qatar pipelines must be pursued with greater vigour. The demand pattern in South Asia, primarily in India since I believe that Pakistan will be self-sufficient at least till 2020, suggests that three pipelines, each with a capacity of 3 bcft a day, could be easily accommodated.
The writer is a former foreign secretary.