The long wait is finally over as the Gas Sales and Purchase Agreement (GSPA) has finally been inked between Pakistan and Turkmenistan on the much-hyped TAPI gas pipeline deal. Although, the government is obviously claiming it as a key milestone towards the completion of the project - it is anything but...
It has taken no less than 17 years for Tapi to just sign the GSPA, as the idea was originated back in 1995. How much more will it take is anybodys guess, but experts opine that even if everything goes fast-paced, it won be completed before 2016-17, as a lot of issues from awarding contracts to agreeing on transit fees, security premiums, arranging finances and the product price are yet to be drafted.
It is ironic that it has taken such long time to even reach at the beginners level, whereas China, on the other hand, originated the pipeline plan with Turkmenistan in 2003 and it was up and running by 2009. Chinas project was very identical to Tapi in terms of project cost, pipeline distance and quantity of gas imported. The only difference was that China was far more serious and focussed and more importantly its route faced no security concerns.
Tapi, which is backed by the US for obvious reasons faces one security obstacle too many as it is designed to pass through the troubled areas of Herat and Kandhar in Afghanistan and Quetta in Pakistan. The US in all likelihood will have left Afghanistan, if and when Tapi comes online, which will leave it on the mercy of either Taliban or militants in Pakistan.
This is why, experts argue that IP gas pipeline is a much more viable alternative for Pakistan, which carries low risk and could be completed much quicker as Iran has completed the bulk of work on its end. Moreover, the gas price too, is expected to be $2/mmbtu lower than Tapi, but since Iran faces US sanctions and Pakistan faces US pressure, the financing of IP remains troublesome. That said Iran is willing to offer assistance in financing of the pipeline project and the Pakistan government also has the room to utilise a decent sum of money collected via Gas Infrastructure Development cess. But, combating the American pressure remains the biggest obstacle in the progress of IP pipeline.
If the ongoing talks between Iran and UN on the nuclear programme bear some fruit, the IP dream could come an inch closer. But, Tapi will remain a distant dream, as industry sources claim that without security guarantee, it would be next to impossible to reach agreements on pricing and transit fees with other countries and the security premium attached to the project might well be over and above the project cost itself.
Pakistan finds itself between a rock and a hard place - where it has a more viable option for the taking but can go for it - and the other one seems an ambitious project with strong backing. It is time Pakistan uses its diplomatic channels wisely and opt in its best economic interests as succumbing to international pressure have not and will not yield results and energy security would remain an elusive dream.
The red dragon slows down
Once the subject of scrutiny for being an overheating economy; China is now under the radar for a possible slowing down of its growth rate.
The first quarter of 2012 has been quite hard-hitting on the Red Dragon. Fuelled by recessive forces in the eurozone, export growth has been much slower than expected, with only a 4.9 percent growth recorded in April compared with a year earlier. In April 2011, the export growth was 29.9 percent on a year-on-year basis.
Even bank lending has fallen down considerably - medium- and long-term loans are down nearly 50 percent from last year. At 8.1 percent, the GDP growth rate during the first quarter of 2012 was the slowest in three years.
Growth forecasts for the economy have been revised downwards as well. In its latest update about the economy, the World Bank brought down the GDP growth rate forecast to 8.2 percent for 2012 from its earlier forecast of 8.4 percent.
Needless to say, dwindling exports, led by the eurozones economic turmoil, have a significant role in bringing down these growth targets. Its the worlds second-largest economy we are talking about here, and the impact of its slowing growth has the potential to be quite catastrophic for global markets.
The country is likely to become the worlds biggest importer by 2014, and, consequently, its slowdown could also mean an easing of in commodity markets, such as oil and base metals. Nouriel Roubini, the doom economist has factored in Chinas growth slowdown as one of the reasons for a slower global economic growth in 2013.
It appears that pumping up Chinas economy is pretty much an imperative, but how?
The Chinese premier Wen Jiabao has suggested infrastructure-led growth, as well as a cut in taxes and more credit for small and medium-sized businesses.
The WB, however, suggests a greater role of fiscal policy, counselling against excessive bank lending and infrastructure investment to stimulate growth. As for interest rate cuts, the WB believes these should be kept for more dire circumstances if the pace of growth worsened more than expected.
Overall, there is greater acknowledgement amongst economists and analysts, however, that the growth stimulus should be more consumption-led and less driven by external demand.
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