Pakistan and the Asian Development Bank are to meet on December 16-17 in Islamabad to hold discussions on Turkmenistan-Afghanistan-Pakistan gas pipeline project. The ADB is financing the feasibility study, and assisting to finalize the framework agreement.
Besides, legal and regulatory framework, the agreement is expected to cover the parameters of financing options, security aspects and involvement of allied industries.
The agreement would trigger a chain of agreements for commercial, financial and technical aspects, while paving way for the constitution of a consortium to lay the pipeline.
This is a multi-stage project, including the feasibility, survey, design and engineering, construction, commissioning, operation and the installation of gas processing plant in Gwadar.
Such projects foster economic activities, particularly where these are located. In certain cases the project is physically located in one country such as an oil refinery that is financed, implemented and operated jointly by a management team comprising officials from the partner countries. In other cases, a project’s facilities may be located in geographical limits of all partner countries like the oil and gas pipeline project. There is an urgent need of South-South cooperation. This article attempts to discuss the factors essential to accelerate the progress in joint projects for the welfare of the participating countries.
Mutual trust and confidence are basic requirements. There must be appreciation and understanding of the economic, financial, political and social benefits that would be available to each participant country. The benefits derived by each partner in a specific project may not necessarily be in direct proportion to the monetary contribution made for the implementation and operation of the project.
However, with a number of projects the benefits to every partner would be proportionate to monetary or other contributions. A clear understanding would speed up the project approval and realization process. The process for realization entails certain responsibilities, rights and monetary contributions, which may be documented. Each government may be required to accord approvals of the project arrangements including legislation and financial allocations within time schedule. To conserve resources and efforts, each project may be put to detailed scrutiny and analysis as to its capital cost and other requirements vis-a-vis its economic benefits particularly the profitability, sustainability, transfer of technology, and the improved managerial practices. Once the projects is selected and approved using the objective criteria, then the subsequent actions — legal, administrative or operational — must be accomplished without delays by all the participating countries.
Preparation of feasibility reports by the multilateral institutions is not common. It is prepared by one and offered for review to all participating countries. The criteria and rationale used by different countries for prioritizing and selecting a joint project may differ in many respects. To avoid delays, it is prudent to jointly consider the main issues and criteria. This may include appointment of consultants, coverage of topics, pertinent assumptions, formats as well as the objective criteria to be used to rate the project viability. The facilities to be provided by each participant to the consultants working on the feasibility and the responsibility for the payment for their services may also be agreed. Systematic work at each level and by each participant can avoid delays and misunderstandings.
Pakistan, has in the past, developed projects under the aegis of the ECO, as well as under bilateral arrangements in sectors such as the banking/investment, engineering, pipeline, refinery, education, industry etc,. However, the number is small, but most projects are doing well. The factors that contributed for the success and failure were the adoption of better procedures and practices, and the avoidance of mistakes. While, some important joint projects are still lingering at the processing stage, these might be hindering the progress on other prospective projects, which may be taken up with the required authorities for amicable solution. There are potentials for developing regional projects under the aegis of Saarc.
There is a need to rationalize the whole procedure of selection, approval and financing. Each country may designate one special department for handling matters concerning the joint projects. This department should coordinate with the concerned ministries, institutions and authorities within the country to remove the bottlenecks in the approval and the implementation of a project. To facilitate smooth progress, there must be continuity of the service of the officers associated with this work. This department may be attached to the office of the head of the government in order to push the project for early clearance and execution.
Large projects, such as energy and infrastructure are capital-intensive. No country can afford to abandon it after investing millions. This calls for careful scrutiny of all projects at the initial stage. Expertize in most sectors is available but perhaps such experts are not associated with the official teams reviewing and selecting the projects for joint financing and execution. On certain aspects assistance might be useful from the multilateral financial institutions. Brotherly countries may also help by offering fixed-term internships and hands-on training at the reputed plants and institutions. The selection should be on the basis of comparative advantage of the participating countries. The country having the highest comparative advantage should be chosen for locating the project in its territory.
Moreover, differing views may be reconciled in the spirit of cooperation. The project parameters are often affected by the desire of one country to create market for its products or raw materials abroad. However, in such cases the project location, finances, incentive, rights and obligations of each country, etc., may be discussed and agreed in the light of the marketing strategy for the finished product or the raw material base.
Trade regimes, the world over, are fast changing. Due to quota restrictions, the production facilities are being shifted to locations that are free from such curbs, or where the requirements are not so strict. Joint industrial projects can also be considered for taking advantage of such opportunities. The full benefits from such projects would be possible only if the execution of the projects is on fast track and the gestation periods is reduced to minimum. Educated and experienced labour, with competent senior managements play an important role in making a project success.
Pakistan is deficient in oil and imports in large quantities to meet requirements. There are possibilities that an oil or gas pipeline may help it to meet the needs of Pakistani market. If such a venture is undertaken, Pakistan would be a customer state of the oil/gas exporting country. Another country that is neither a customer nor an exporter, but provides transit facilities due to its location; and therefore its position will be different from the other two countries. The rights and obligations of the three states may be negotiated and agreed in a way which benefits all. The price of the products should be adjusted according to the geo-political and ground realities. There must also be indexations to take care of future price changes. Index chosen should be such that none of the countries involved has any control over elements used in its determination.
Due to its long shoreline, Pakistan is in a position to provide an outlet to the world for oil and gas pumped by the landlocked petroleum rich countries. In case a pipeline is under consideration for supplying oil or gas to Pakistan as well as for export to other countries, the relative position of Pakistan will be different. Pakistan would be paying the product it buys but it may also expect compensation for providing transit facilities as well as its security. The other countries should realize the position and adjust the rights and obligations accordingly.
Historical data with proper modifications and adjustments, can pave way for early resolution of the matters. This is essential for the project to materialize and sustain over the years to come. Joint projects offer employment and other opportunities during the construction and operation. The benefits differ from project to project. Participating countries may agree on the basis of sharing the benefits. In addition, there would be opportunities for technical expertize from all the participants. Some countries will also be in a position to provide machinery, pipes, construction material or other inputs at competitive rates. Subject to the acceptable quality, procurement from such countries may be preferred, which will restrict the kickbacks. Local procurement will help reduce the capital cost and the gestation period.
Proper databank on projects being implemented worldwide, as well as on the existing joint ventures can enhance the speed with which new projects can be taken up for consideration, approval, financing and execution. Copies of the agreements, engineering/procurement contracts, feasibility reports, annual audited reports, letters of support, guarantees, etc., are the set of documents that can be useful in negotiating and realizing new projects in record time. However, these documents may not be easily available. Special efforts and financial allocations may be required to set up such databank. The databank, once established, could also be used for clearing many aspects of the national projects as well.