India gets ready for TAPI pipeline; Petroleum ministry to seek Cabinet nod

With India renewing its focus on getting natural gas from Turkmenistan, the petroleum ministry will be seeking Cabinet approval for two multilateral agreements. The Cabinet proposal will include a commitment for certain tax exemptions and a uniform rate of income tax for $7.6-billion transnational pipeline project. 

The special tax dispensation is a requirement under the gas pipeline framework agreement (GPFA), which Turkmenistan, Afghanistan, Pakistan and India plan to sign during a prime ministerial summit next month. With prime minister Manmohan Singh expected to attend the summit in Ashgabat, the Cabinet approval is likely to come without much hitches. 

Clause 31 of the draft GPFA requires countries to guarantee no direct or indirect tax levy, including VAT and other duties, on pipeline tariff and transit fee. The consortium operating the pipeline though will pay a uniform rate of income tax on its profit and tax on the eventual sale of gas. 

Out of 90 million standard cubic metre a day (mscmd) gas that would be pushed from Dauletabad field in Turkmenistan, Afghanistan would consume 14 mscmd while 38 mscmd each would be taken by India and Pakistan. On India’s behalf, GAIL India would be importing a total of 13.87 billion cubic metre natural gas starting 2014. 

A consortium of technically competent and financially capable international companies with experience in implementing such projects would operate the project. The consortium would take over the project after the construction is completed on a reimbursement of cost basis. 

A senior government official said the Cabinet approval would also be sought for an intergovernment agreement (IGA) that would acknowledge partnership in oil and gas industry as a “major priority” for the four participating countries. The agreement would also underline the strategic importance of the pipeline. 

Besides Asian Development Bank, the pipeline, popularly known as TAPI pipeline, has the backing from the United States that is militarily active in Afghanistan. Though there are security concerns surrounding the pipeline, US deputy Assistant Secretary of State Susan Elliott recently said in Ashgabat that the pipeline could boost stability across the war-torn region”. The US came even as it is opposed to another pipeline from Iran to Pakistan and India. 

According to the draft GPFA, Afghanistan will secure the proposed pipeline by removing any mines in the area of transit. Afghan minister Wahidullah Shahrani had earlier said that the war-torn country would bury sections of the pipeline underground through the Taliban heartland by burying sections underground and pay local communities to guard it. 

The IGA, that is expected to remain in force till December 31, 2045, will authorize respective state organisations to draft and agree to final documents for the formation of a private consortium to implement the project. Afghan Gas Enterprise will be taking 5.11 bcm gas from the pipeline and Pakistan’s State Gas System (Pvt) Ltd will buy another 13.87 bcm. Pakistan would also be allowed to take any excess gas for liquefaction at one of its ports.