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Project Concept Paper 

Project Number: 52167-001 

June 2020 

Proposed Loan, Grant, Partial Credit Guarantee, and Transaction Technical Assistance 

Turkmenistan-Afghanistan-Pakistan-India (TAPI) Gas Pipeline Project (Phase 1)  

This document is being disclosed to the public in accordance with ADB’s Access to Information Policy. 

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgements as to the legal or other status of any territory or area.  

ABBREVIATIONS 

In this report, "$" refers to United States dollars 

In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. 

CONTENTS 

Page 

PROJECT AT A GLANCE PROBLEM TREE 

I. THE PROJECT           1

A. Rationale        1

B. Proposed Solutions    3

C. Proposed Financing Plans and Modality       4

D. Implementation Arrangements           6

II. PROJECT PREPARATION AND READINESS         6

III. DELIBERATIVE AND DECISION-MAKING ITEMS 8

A. Risk Categorization    8

B. Project Procurement Classification    8

C. Scope of Due Diligence          9

D. Processing Schedule and Sector Group’s Participation        9

E. Key Processing Issues and Mitigation Measures      10

APPENDIXES 

1. Design and Monitoring Framework    11 
2. Project Rationale for TAPI Countries             13 
3. Project Procurement Classification    15 
4. Technical Assistance Report              16
5. Initial Poverty and Social Analysis     17 

PROJECT AT A GLANCE

PROBLEM TREE 

                                                           I.          THE PROJECT 

A.         Rationale

1. The governments of Afghanistan, Pakistan and Turkmenistan have each requested the Asian Development Bank (ADB) financing support for phase 1 of the Turkmenistan-AfghanistanPakistan-India (TAPI) gas pipeline (the “project”)^[3]. In addition, the Government of Turkmenistan has requested ADB to provide a partial credit guarantee (PCG) in support to the project. The pipeline will extend approximately 1,600 kilometers (km), from the Turkmenistan-Afghanistan border to the Pakistan-India border. At full design capacity, the 56-inch TAPI pipeline can transport up to 33 billion cubic meters (bcm) of natural gas per year from Turkmenistan to Afghanistan, Pakistan, and India over a commercial operations period of 30 years.  
2. Suboptimal regional gas and energy trade markets contribute to limited economic growth, increased poverty (possibly leading to social unrest) and exacerbated greenhouse gas emissions in the TAPI region. The project will considerably help improve regional energy trade, as it will build and support requisite natural gas supply and transportation capacity across the TAPI countries. Its realization will additionally help address several issues causing the suboptimal regional gas market by improving cross-border cooperation among multiple stakeholders, resolving some of the security issues in Afghanistan and Pakistan, as well as improving institutional capacity to implement complex projects. It will also attract and catalyze investments and financing that would otherwise be unavailable and, ultimately, help boost regional economic growth. 
3. The project comprises the design, procurement, installation and operation of the pipeline and related facilities (without compressor stations in phase 1) within Afghanistan and Pakistan. Concurrently, State Concern <<Turkmengas>> (Turkmengaz) makes use of its own resources 

(including financing secured from the Islamic Development Bank) to implement within Turkmenistan: (i) the appropriation of a dedicated portion of the Galkynysh gas field; (ii) the installation of approximately 200 km of upstream pipeline connecting the Galkynysh gas field with the project at the Turkmenistan-Afghanistan border; and (iii) the construction of one or more compressor stations.^[4] Similarly, GAIL (India) Limited (GAIL) will use its resources to implement within India the installation of approximately 10 km of downstream pipeline connecting the project at the Pakistan-India border with GAIL’s existing gas network terminus in Fazilka. Once phase 1 is completed, the project is expected to transmit annually about one third (i.e. 11 bcm of gas) of the TAPI pipeline’s design capacity (paragraph 9).^[5]

1. Once operational, the TAPI pipeline will allow Turkmenistan to diversify and expand its gas export markets to the southeast, into Afghanistan, Pakistan, and India. The Central Asia 

Regional Economic Cooperation (CAREC) Program’s Strategy for Regional Cooperation in the Energy Sector has identified the TAPI Pipeline as one of the main links in the inter-energy relationship among CAREC countries. Overall, the TAPI pipeline will have a transformational impact on regional cooperation and will also support other initiatives aimed at increasing growth and economic stability in the region.^[6] The project is aligned with the development strategies of 

Turkmenistan, Afghanistan, Pakistan and India (TAPI), as reflected in their respective country partnership strategies, and is also consistent with the objectives of ADB’s Strategy 2030. The project is included in the 2020-2022 country operations business plans (COBPs) for Turkmenistan, Afghanistan and Pakistan. The project’s rationale for each of the TAPI countries is detailed in Appendix 2. 

1. Project background. The TAPI pipeline has been under discussion for more than 20 years. In 2013, the governments of Afghanistan, India, Pakistan and Turkmenistan directed their respective state gas entities (hereinafter collectively referred to as the “TAPI Sponsors”)^[7] to develop, and invest in, the TAPI pipeline. The TAPI Sponsors became the founding shareholders of the TAPI Pipeline Company Limited (TPCL) incorporated in the Isle of Man (United Kingdom) in 2014 and holding its main office in Dubai (United Arab Emirates) since 2016. TPCL’s mandate is to develop, own, and operate the TAPI pipeline. 
2. TPCL was initially established with each of the TAPI Sponsors holding a 25% share. In August 2015, the TAPI Steering Committee comprising responsible ministers of the TAPI countries endorsed Turkmengaz as the Consortium Leader of TPCL to spearhead efforts to develop, build, finance, and operate the TAPI pipeline. Subsequently, the TAPI Sponsors and TPCL signed the Shareholders Agreement in December 2015.  Following Turkmengaz’ incorporation of Galkynysh Pipeline Company (GPC) as a wholly-owned special purpose vehicle to hold its equity interest in TPCL in March 2016, the TAPI Sponsors, GPC and TPCL signed the Investment Agreement in April 2016.  Through these agreements, it has been agreed that GPC will hold 85% of TPCL, and that the Afghan Gas Enterprise (AGE), Inter State Gas Systems (Private) Limited (ISGS), and GAIL each will hold 5%. 
3. Past ADB involvement. In 2001, the Governments of Afghanistan, Pakistan and Turkmenistan requested ADB to act as the Secretariat for the Steering Committee of the proposed Turkmenistan-Afghanistan-Pakistan Natural Gas Pipeline. In March 2003, India was invited to join what became the TAPI Pipeline.^[8] In its capacity as Secretariat, ADB provided over $4 million in technical assistance for various studies and facilitated the preparation, negotiation, and signing of key agreements: Inter-Governmental Agreement, Gas Pipeline Framework Agreement, Operations Agreement, and three Gas Sales and Purchase Agreements. 
4. ADB was appointed Transaction Advisor by the TAPI Sponsors in November 2013. In this capacity, ADB helped to establish TPCL, facilitated the appointment of Turkmengaz as the Consortium Leader in 2015, managed the production of preliminary technical and financial feasibility studies in 2014-2015, and facilitated the negotiation and signing of the Shareholders Agreement and the Investment Agreement in 2015 and 2016, respectively. The signing of the Investment Agreement marked the successful completion of ADB’s transaction advisory mandate. 
5. Two-phase approach. In September 2017, TPCL informed ADB that it intended to implement the TAPI Pipeline in two phases, with financing for phase 1 to come from shareholders and export credit agency (ECA) supported debt financing backed by 100% sovereign guarantees 

representative further indicated that the TAPI pipeline project, if implemented well, would without doubt help substitute oil and coal and contribute to the sustainable development in Afghanistan, Pakistan and India, while generating significant foreign exchange revenues for Turkmenistan. The UN representative also underscored the importance of establishing connectivity with local communities by providing jobs and ensuring that transit fees and development decisions will widely benefit such communities. Consequently, the UN representative recommended that governments, companies and civil society work together closely to ensure that the TAPI pipeline project will deliver in a sustainable manner on its promise to bring peace and stability to the region. 

from Turkmenistan. ^[9] In phase 1, the 56-inch TAPI pipeline would be constructed with one compressor station in Turkmenistan, and without any other compressor station elsewhere along the pipeline. This would allow the collective delivery of approximately 11 bcm of gas per annum to Afghanistan, Pakistan, and India. In phase 2, which is to be implemented after phase 1 becomes operational, four and two compressor stations are to be installed in Afghanistan and Pakistan, respectively, enabling the TAPI pipeline to transmit 33 bcm of gas yearly as per its original design capacity. 

1. Present project status. At the 25th TAPI Steering Committee Meeting in February 2018, it was agreed -in principle- that the TAPI pipeline would be implemented using a two-phase approach, subject to its commercial viability being established. TPCL recommended to the TAPI Steering Committee that the project (with an estimated total cost of $7.7 billion) would be financed mainly by ECAs supported by pro-rata sovereign guarantees from each of the TAPI countries. Although the Steering Committee did not decide on this recommendation, it requested TPCL to provide its shareholders with all details necessary for them to conduct: (i) an analysis of the proposed two-phase approach; and (ii) internal discussions regarding the provision of sovereign guarantees. To potentially shorten the time toward the initial delivery of gas under phase 1, TPCL has commenced safeguards assessments required for the project and procurement activities for the supply of long lead items (pipeline, valves, etc.) and engineering, procurement and construction (EPC) contracts for construction of the pipeline. ADB’s preliminary due diligence identified several critical issues in the TPCL that followed procurement processes that are particularly pertinent to the EPC contracts for Afghanistan. Following its discussions with ADB, TPCL agreed to re-procure these contracts.  

B.         Proposed Solutions 

1. Following extensive interaction between ADB and TPCL and TPCL’s willingness to reprocure the EPC contracts for Afghanistan, ADB has continued considering sovereign financing support for the project. This will help TPCL meet its financing needs and should encourage participation of other financing partners. For Turkmenistan, the project is consistent with the government’s diversification priorities and aligned with the strategic objective of the country partnership strategy (CPS) to help the country become a key catalyst for regional cooperation and integration by supporting hydrocarbon market diversification and energy trade promotion. As for Afghanistan, the project supports Strategic Pillar 1 of the CPS by expanding energy trade and regional cooperation.^[10] For Pakistan, the project aligns with the priorities in the CPS, to provide reliable and affordable energy services through the development of additional energy resources.^[11] In the case of India, the project supports the priorities of the CPS by bringing about long-term energy security to meet the country’s growing energy demand and by improving energy supply mix with a cleaner energy resource. 
2. The project’s expected main outputs are: (i) the completed and operationalized TAPI pipeline in Afghanistan and Pakistan transporting gas from Turkmenistan to Afghanistan, Pakistan and India; and (ii) increased numbers of supply chain businesses, including micro, small and medium enterprises (MSMEs), in selected districts of Afghanistan and Pakistan along the TAPI Pipeline route. These outputs will result in the following outcome: an expanded regional gas market.^[12] While also expected to boost economic activity, the project will have been aligned with the following impacts: (i) improved fiscal positions for Turkmenistan (through gas sales revenues), 

as well as for Afghanistan and Pakistan (through transit fees); (ii) regional integration and cooperation between Turkmenistan to Afghanistan, Pakistan, and India; and (iii) increased employment opportunities (including from the increase of MSMEs along the TAPI pipeline) in Afghanistan and Pakistan. 

C.         Proposed Financing Plans and Modality  

1. The estimated total project cost (defined in paragraph 1) is $7.7 billion. The indicative financing plan is set out in Table 1. TPCL has indicated that a debt-to-equity gearing ratio of 70/30 is likely to be accepted by potential financiers. On this basis, TPCL will have to raise up to $5.4 billion in debt financing. Besides ECA backed financing, TPCL may have to source supplemental financing from other (commercial) financiers due to national content eligibility and risk absorbing capacity or appetite constraints. For example, ECAs of member countries of the Organization for Economic Cooperation and Development would typically require 15% minimum down-payment for ECA-supported contracts to be sourced from TPCL’s own means and/or other (commercial) financiers. 
2. ADB is considering the provision of $300 million and $100 million in loans from ADB’s ordinary capital resources (OCR) to Turkmenistan and Pakistan, respectively, as well as a $100 million grant to Afghanistan, out of which $70 million are sourced from the Asian Development Fund (ADF) – special operations, and $30 million from yet to be determined donor co-financing  

(collectively hereinafter referred to as “ADB Sovereign Financing”). The proceeds of the ADB Sovereign Financing will be made available to GPC (via Turkmengaz), AGE and ISGS to fund a portion of their respective equity contributions to TPCL.^[13] Based on an estimated total project cost of $7.7 billion, Turkmengaz (via GPC) will have to provide an additional $1,675 million to contribute its remaining share in TPCL’s equity. While AGE and ISGS will have to pay an additional $16 million each for their remaining equity stakes in TPCL, GAIL’s overall equity contribution to TPCL amounts to $116 million. Equity contributions will probably be disbursed concurrently to maintain shareholding percentages at all times. Specific details will be determined later in accordance with the negotiated financing structure and terms as equity contributions may be made pro rata with debt or may need to be made upfront. No portion of the ADB Sovereign Financing may be disbursed unless all amounts of equity and debt required for the project have been fully committed and are available. 

1. ADB is also considering the provision of a PCG covering up to $500 million in loan principal amounts payable under a commercial loan to the State Bank for Foreign Economic Affairs of Turkmenistan (TVEB). Proceeds of such commercial loan of up to $617 million are to be on-lent by TVEB to TPCL and backed by a sovereign counter-guarantee and indemnity agreement (CGIA) entered into by ADB and the Republic of Turkmenistan.^[14] The PCG would help  mobilize commercial financing that may not otherwise be available for the project. In order to achieve ADB’s objective of obtaining leverage (lower ADB’s guaranteed percentage), ADB will seek to supplement its cover with cover from third parties acceptable to project lenders. The exact risk participation amounts by third parties will be determined through consultations with the market.  

Table 1: Indicative Financing Plan

                                                                                                                        Amount     Share of 

Source                                                                                                                 ($              Total 

                                                                                                                        million)            (%)

   GAIL                                                                                                                                       1.5

Total Equity                                                                                                                              30.0

ECAs covered loans                                                                                          4,407.0             56.9 

ADB Ordinary capital resources (PCG covered commercial loan to TVEB 

backed by CGIA)^a,e                                                                                              500.0              6.5 

Direct loans/senior shareholder loans/risk participation/uncovered portion                       

under ADB PCG                                                                                                   212.0              2.7 

ICIEC insured loans                                                                                                    3.9

ADB = Asian Development Bank, ADF = Asian Development Fund, AGE = Afghan Gas Enterprise, CGIA = counter-guarantee and indemnity agreement, ECA = Export Credit Agency, GAIL = GAIL (India) Limited, GPC = Galkynysh Pipeline Company, ICIEC = Islamic Corporation for the Insurance of Investment and Export Credit, ISGS = Inter State Gas Systems (Private) Limited, OCR = ordinary capital resources, PCG = partial credit guarantee, RCI = regional cooperation and integration, TPCL = TAPI Pipeline Company Limited, TVEB = State Bank for Foreign Economic  Affairs of Turkmenistan  Note: All numbers are to be confirmed. 

^a  Proceeds of ADB financing instruments are solely applied to eligible expenditures under re-procured EPC contract for Afghanistan. 

^b  Breakdown of ADB resource allocation for Afghanistan is $77 million (ADF RCI thematic pool) plus $39 million (ADF) financing 100% of AGE’s $116 million equity investment in TPCL. 

^c  Breakdown of ADB resource allocation for Pakistan is $87 million (OCR) plus $29 million (ADF RCI thematic pool) financing 100% of ISGS’ $116 million equity investment in TPCL. ^d Financial contributions from these entities constitute their respective government’s counterpart financing for the project. 

^e Covering a commercial loan to TVEB to be on-lent to TPCL and backed by the CGIA between ADB and the Republic of Turkmenistan. Source: Asian Development Bank. 

16.       The tentative funds flow arrangements are described in the below diagram: 

 Flow of proceeds of ADB financings 

ADB = Asian Development Bank, AFG = Afghanistan, AGE= Afghan Gas Enterprise, CGIA = counter-guarantee and indemnity agreement, ECA = export credit agencies, GAIL = GAIL (India) Limited, GPC = Galkynysh Pipeline Company, ICIEC = Islamic Corporation for the Insurance of Investment; ISGS = Inter State Gas Systems (Private) Limited, PAK = Pakistan, PCG = partial credit guarantee, TVEB = State Bank for Foreign Economic Affairs; TKM = Turkmenistan, TPCL = TAPI Pipeline Company Limited, Turkmengaz = State Concern <<Turkmengas>> 

D.         Implementation Arrangements 

Table 2: Indicative Implementation Arrangements

Source: Asian Development Bank. 

17. TPCL will be responsible for all project implementation activities, including procurement and award and management of all supply, works, consulting services, and other contracts, as well as ensuring the safeguard requirements of the governments and financing agencies are complied with. A project agreement will be executed between ADB and TPCL (and possibly TVEB if required for PCG transaction purposes) under which TPCL will assume direct obligations to ADB to implement the project. The financing agreements between ADB and Turkmenistan, 

Afghanistan, and Pakistan, respectively, will include provisions requiring that their respective state owned gas entities (footnote 5), exercise their powers as (indirect) shareholders of TPCL, to ensure that TPCL: (i) implements the project in accordance with the project documentation (including financing agreements, project agreement, and safeguards documents); and (ii) undertakes any other actions required to facilitate project completion (including provision of approvals for project procurement and performing project oversight and monitoring). 

                                  II.         PROJECT PREPARATION AND READINESS  

1. Design readiness. The proposed transaction technical assistance (TRTA) of $2.15 million will confirm project readiness in all aspects, review procedures and documents used by TPCL for the procurement of equipment and EPC contracts and assess the acceptability or otherwise of 

TPCL’s safeguards studies. The TRTA report is in Appendix 3. Given that TPCL cannot provide detailed design for the project’s EPC contracts until they have been awarded and the contractors have completed the detailed design of the project, additional resources will be necessary to monitor the project implementation activities during the construction period. Although this would typically be the responsibility of TPCL, ADB may consider providing some resources in order to secure effective oversight over these implementation activities during that period. 

1. Procurement readiness. TPCL has commenced procurement activities for the EPC contracts for the construction of the pipeline in Afghanistan and Pakistan. Given the issues identified by ADB in the procurement process conducted by TPCL to date, TPCL has agreed to re-procure the EPC contract for the project sections in Afghanistan (paragraph 10). ADB continues its procurement due diligence process, while providing direct ADB support to TPCL during its re-procurement of the EPC contract for Afghanistan to help ensure that this contract will be compliant with ADB Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time). It is assumed that all contracts resulting from TPCL procurement activities will not be signed or become effective until all financing for the project, including from ADB, ECAs, and other financiers has been secured. Proceeds of ADB’s financing instruments are solely applied to eligible expenditures under the re-procured EPC contract for Afghanistan. Subject to further assessment and procurement process compliance with ADB requirements, including ADB’s Core Procurement Principles and any other ADB requirements, retroactive ADB financing may be considered appropriate. 

1. Environmental Safeguards. The project is classified as ‘A’ for environment due to significant land uptake, transboundary nature and crossing of key waterways and areas with high biodiversity value considered as critical habitat. Other impacts related with dust / air emissions, noise generation, occupational and community health and safety are also envisaged during project construction and operation phases. Hence, separate Environmental and Social Impact Assessment (ESIA) studies for Afghanistan and Pakistan sections of the pipeline will be prepared and disclosed on ADB website to comply with ADB’s Safeguard Policy Statement (SPS)-2009. The requirements of other international finance institutions and the concerned national authorities will also be considered with ADB requirements being met at a minimum. In addition, meaningful stakeholder consultations will continue to be conducted and an environmental management plan (EMP) and biodiversity action plan (BAP) will be prepared as part of the ESIA studies. Moreover, security issues in Afghanistan and Pakistan (Balochistan) will be a key concern during pipeline construction and operation and will require careful resourcing and subsequent management. Furthermore, Galkynysh gas field upgrades required for the project, the planned 38-meter pipeline corridor, the 200 km upstream pipeline and compressor station(s) in Turkmenistan is considered as an associated facility as per SPS-2009 and would require preparation of necessary environmental due diligence report as may also be the case for the India section ¹³. 

1. Once constructed, the pipeline will be buried ^[15] which means access should not be restricted along the pipeline and land use for agricultural activities may be able to continue, subject to a determination by the respective governments of the extent to which the pipeline right of way will be accessible.  

1. Social Safeguards. Based on information provided by TPCL and its consultants, the project is classified as category A for involuntary resettlement (IR) impacts (due to significant land take, and consequent probable impacts on livelihoods). It is estimated that around 6,680 hectares (ha) of land (280 ha in Turkmenistan, 3,100 ha in Afghanistan, and 3,300 ha in Pakistan) will have to be permanently acquired for the pipeline, access roads and above-ground installations of which 688 (ha) in Afghanistan and 444 (ha) in Pakistan are considered as natural habitat. Around 2,600 ha of easements and 5,400 ha of temporarily leased land may also be required, although this should be fully reinstated following construction. It is estimated that approximately 7,730 people or 1,100 households (95 people in Turkmenistan, 1,450 people in Afghanistan, and 6,185 people in Pakistan) are within the 38-meter corridor who may be affected. Overall, it is highly probable that more than 200 persons may experience significant impacts. Hence, the project is classified as category A for IR.  

1. Turkmenistan is an ethnically homogeneous state with Turkmens comprising 85% of the population. The provinces in Afghanistan where the pipeline crosses are mainly comprised of Pashtuns. Other major ethnic groups that include Tajik, Hazara, Uzbek and Baloch may also be present in the project area. The two provinces in Pakistan where the pipeline crosses are 

¹³ The decision on whether to consider the Indian section an “Associated Facility” as per ADB’s SPS is yet to be taken. This will be based on whether: (i) the approx. 10km section of the TAPI pipeline in India is viable and can exist without the ADB TAPI Phase 1 project (i.e. the approx. 1,600km TAPI pipeline from the Turkmenistan-Afghanistan border until the Pakistan-India border); and (ii) the approx. 10km section in India can deliver its goods and services without the TAPI Phase 1 Project. This two-pronged test needs to be supported by technical, financial and economic feasibility data and analysis to determine the viability and delivery of goods and services. 

inhabited by Pashtuns and Baloch. None of these major groups and other ethnic groups along the corridor have been identified as indigenous peoples as defined by the Safeguard Policy Statement (SPS). At this stage, the project is classified as category C for impacts on indigenous peoples (IP). 

24. TPCL is currently preparing environmental and social impact assessments, draft land acquisition and resettlement frameworks and plans, and stakeholder engagement plans for both Afghanistan and Pakistan in accordance with the SPS . In addition, an environmental assessment is being completed for the Turkmen section of the pipeline and a framework document will also be provided for implementation of a project-wide environmental and social management system during construction and operation. ADB is providing comments on the preparation of these documents. Additional technical assistance will be provided by ADB to monitor TPCL’s implementation of the project’s safeguards activities during the construction period 

                               III.        DELIBERATIVE AND DECISION-MAKING ITEMS 

A.        Risk Categorization 

25. The project is categorized as complex due to (i) the total amount of ADB Sovereign Financing exceeding $200 million; (ii) possible category A classification for both environmental and involuntary resettlement impacts; and (iii) absence of TPCL’s track record in implementing a complex project of this nature. 

B.         Project Procurement Classification 

26. The proposed project procurement classification is A (Appendix 2). TPCL has commenced procurement of long lead items and EPC contracts (paragraph 10). ADB will conduct due diligence on the procurement process, evaluation criteria, and the evaluations to ensure that procurement of the goods and services eligible for ADB financing has been undertaken in a manner consistent with ADB’s Procurement Policy (2017, as amended from time to time) and Procurement Regulations for ADB Borrowers (2017, as amended from time to time), including ADB’s Core Procurement Principles.  

C.         Scope of Due Diligence 

Table 3: Scope of Due Diligence

ADB = Asian Development Bank, AML/CFT = anti-money laundering/combating the financing of terrorism, FEED = front-end engineering design, IDD = integrity due diligence, TRTA = transaction technical assistance. Source: Asian Development Bank. 

D.         Processing Schedule and Sector Group’s Participation 

Table 4: Indicative Processing Schedule by Milestone^a

ADB = Asian Development Bank; AFG = Afghanistan; COBP = country operations business plan, ESIA = environmental and social impact assessment; PCG = partial credit guarantee; PCP = project concept paper; PAK = Pakistan; TKM= Turkmenistan; TPCL = TAPI Pipeline Company Limited; TRTA = transaction technical assistance. ^a Expected completion dates will change depending on: (i) impact of global COVID-19 outbreak; and (ii) the information provided by TPCL, TAPI country counterparts and/or their state gas companies, progress/completion of: (i) re-procurement of the AFG engineering, procurement, and construction (EPC) contract; (ii) satisfactory due diligence ADB and others; (iii) bankable legal structure/agreements; and (iv) TPCL securing total financing for the project. 

^b   Requests from TKM and AFG received; PAK interest in the project had been confirmed in Aug 2019. 

Source: Asian Development Bank estimates. 

E.         Key Processing Issues and Mitigation Measures 

Table 5: Issues, Approaches, and Mitigation Measures

AFG = Afghanistan, CAREC = Central Asia Regional Economic Cooperation, EPC= engineering, procurement and construction, FEED = front-end engineering design, GMS = Greater Mekong Sub region, GSPA = Gas Sales and Purchase Agreement, IND = India, LARF = land acquisition and resettlement framework, LARP = land acquisition and resettlement plan, PAK = Pakistan, TKM = Turkmenistan, TPCL = TAPI Pipeline Company Limited, TRTA = transaction technical assistance, SGE = some gender elements Source: Asian Development Bank.

           Appendix 1             

PRELIMINARY DESIGN AND MONITORING FRAMEWORK

                          1

ADB = Asian Development Bank, ADF = Asian Development Fund, AFG = Afghanistan, AGE = Afghan Gas Enterprise, bcma = billion cubic meters per annum, ECA = export credit agencies, GAIL = Gail (India) Limited, GPC = Galkynysh Pipeline Company, GSPA = Gas Sales and Purchase Agreement, GTA = Gas Transportation Agreement, HCA = Host 

Country Agreement, IND = India, ICIEC = Islamic Corporation for the Insurance of Investment and Export Credit, ISGS = Inter State Gas Systems (Private) Limited, OA = Operations Agreement, OCR = ordinary capital resources, PAK = Pakistan, PCG = partial credit guarantee, MSME = micro, small and medium enterprises, PSR = pipeline system rules, 

TAPI = Turkmenistan-Afghanistan-Pakistan-India, TBD = to be determined, TVEB = State Bank for Foreign Economic Affairs of Turkmenistan, TFA = Transit Fee Agreement, TKM = Turkmenistan, TPCL = TAPI Pipeline Company Limited.  

^a      ADB. 2011. Government of Turkmenistan. The National Strategy for Social and Economic Development for 2011− 2030. Unofficial Translation. Ashgabat. (Internal).  

^b      Government of Afghanistan. 2016. Afghanistan National Peace and Development Framework (ANPDF), 2017 to 2021. Kabul. 

^c      Government of Pakistan, Planning Commission. 2014. Pakistan 2025 — One Nation, One Vision. Islamabad. ^d ADB. 2017. CAREC 2030, Connecting the Region for Shared and Sustainable Development. Manila. Source: Asian Development Bank. 

                        2                    Project Rationale for TAPI Countries 

1. Turkmenistan. Turkmenistan is the 12^th largest natural gas producer in the world producing over 85 bcm/year^[17] with the fourth largest natural gas reserves, and the 10^th largest oil producer in Asia and the Pacific.^[18]  Natural gas and less significantly, oil, and oil-related products, consistently averaged close to 90% of Turkmenistan’s annual exports for the period 2001–2015. However, the country’s highly concentrated export basket and export markets have made growth susceptible to an adverse external environment, as has been the situation with the relatively low global hydrocarbon prices and a slowdown in the economies of the country’s trading partners after mid-2014. In order to diversify its gas sector, the government of Turkmenistan is developing its petrochemical and fertilizer sectors. In 2018, for example, a 1.16 million tonnes urea plant was commissioned with a demand of 1 bcm of feedstock annually. The construction of the new Kiyanly (Gyyanly) Polymer Plant was also initiated in 2014 and commissioned in 2018, which, when at full capacity, is expected to have a feedstock requirement of up to 5 bcm per year. 
2. The key challenge for Turkmenistan today is to achieve economic diversification. Revenues from gas sales rendered by the TAPI pipeline provide one of the opportunities to help achieve this by specifically helping monetize the country’s gas (with potential future monetary savings available for investment in high value-added economic sectors). It will allow Turkmenistan to diversify its gas export markets: (i) potentially leading to an improved, more stable fiscal position through long-term offtake contracts with new gas purchasers; (ii) resulting in net financial benefits from gas sales revenues from Afghanistan, Pakistan, and India; (iii) generating local employment opportunities during construction and operation of the gas field, gas processing plant(s), compressor station(s), and pipeline within Turkmenistan; and (iv) potential use of gas sales revenues for the development of non-traditional sectors. 
3. Afghanistan. While the security situation continues to shape Afghanistan’s development trajectory and adversely affects all aspects of life in the country, the TAPI pipeline has the potential to unite warring factions and make the environment more secure, for example by designing and implementing community-based security, social and economic development plans. Once operational, will bring significant financial benefits from transit fees payable by Pakistan and India. It will also provide an improved and cleaner energy supply mix and bring much needed energy at competitive prices. In addition, by providing natural gas to further industrial development, local employment opportunities will be generated during construction and operation of the phase 1 pipeline (and the four compressor stations envisaged to be installed during phase 2), provide natural gas for additional industrial development. In addition, the country will benefit from the provision and upgrading of associated infrastructure (like access roads), de-mining along the pipeline route, and remote access to electric power. 
4. Pakistan. The country has historically been dependent on indigenous production for its natural gas supply which is used in power (30%), industrial sector (36%), buildings (20%), transport (5%) and other (9%).^[19]-[20]Although Pakistan has over 14 bcm/year of liquified natural gas (LNG) facilities to offset decreases in indigenous natural gas production, there are still current and projected gaps in supply. The government has developed plans to increase LNG, provide additional supply through the TAPI and other pipelines and work with the private sector to explore and develop further indigenous resources. 

1. As load shedding is common and severe in Pakistan, power shortages are estimated to have reduced gross domestic product growth by at least 2% in recent years and are considered the major cause of the slowdown in large-scale manufacturing.^[21] The TAPI Pipeline will help to provide long-term energy security to meet the country’s growing energy demand and mitigate Pakistan’s increasing domestic gas supply deficit. It will improve the energy supply mix with cleaner energy resources, generate financial benefits from transit fees from India (more or less offsetting transit fees payable by Pakistan to Afghanistan), and create local employment opportunities during construction and operation of the phase 1 pipeline (and the two compressor stations envisaged to be installed during phase 2).
2. India.  The strategy of the Government of India has been to expand the role of natural gas for electric power generation, fertilizer production, transport and household use.^[22] Until 2004, India supplied demand for natural gas from indigenous production, but then began importing through LNG. The country does not have any cross-border pipelines for importing natural gas and currently depends on four LNG terminals with a total nameplate capacity of 47 bcm/year (although only 20-30 bcm/year is utilized due to pipeline connectivity and infrastructure). Since only 3% of the country’s power is produced using cleaner natural gas (as opposed to 40% using coal), there is increased pressure to shift towards the use of natural gas for electricity generation. India is investing in additional LNG facilities, transmission infrastructure, city gas and transport-based utilization. Overall, strong demand for natural gas is expected as the country’s generation capacity needs to keep pace with rapid economic growth, while constrained by financial difficulties faced by power utility companies. Once constructed, the pipeline could supply additional natural gas capacity to help meet India’s energy needs.^[23]

                       3                   PROJECT PROCUREMENT CLASSIFICATION 

ADB = Asian Development Bank, AFG = Afghanistan, DMC = developing member country, EA= executing agency, EPC = engineering, procurement, and construction, IA = implementing agency, PAK = Pakistan, TKM = Turkmenistan, TPCL = TAPI Pipeline Company Limited. Source: Asian Development Bank.