Afghanistan is transforming itself into a roundabout between two emerging economic hot spots in the next decade, connecting Central Asia to South Asia for further regional cooperation, energy transformation, trade, and transit. The Central and South Asia region is rapidly changing. The Shanghai Cooperation Organization (SCO) will soon add new members for the first time since taking its current form. China is set to invest $46 billion in the China-Pakistan Economic Corridor linking Kashgar to Gwadar and India will invest $500 million in Iran’s Chabahar port. And there are a slew of other regional connectivity projects: the Five Nations Railway corridor (linking China to Iran via Afghanistan, Tajikistan, and Kyrgyzstan) and — most importantly — the regional energy integration projects, including the CASA-1000 electricity transmission project, the TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline, and the TUTAP (Turkmenistan-Uzbekistan-Tajikistan-Afghanistan-Pakistan) electricity transmission line. All these initiatives foreshadow significant geo-economic shifts in the near future. This creates favorable conditions for Afghanistan to play its natural role of connecting the two emerging economic zones and lift itself out of political and economic fragility.
The South Asian economies are growing rapidly, which creates a thirst for energy. India now enjoys the strongest economic growth rate among the major emerging markets, around 7.5 percent by the end of FY2016. That will contribute to an expected annual increase of 2.6 percent in India’s energy consumption. Meanwhile, Pakistan is undergoing a gradual recovery to around 4 percent economic growth by the end of FY2016, along with a low inflation rate, fiscal consolidation, and plans to rebuild its external position. That means both of South Asian powers must provide a sufficient amount of energy for their economies. The oil and gas resources of Central Asia and northern Afghanistan are the nearest and most economical answers to South Asian energy needs.
The region’s countries have taken up many initiatives for integrating of the two markets, which has led to an emerging strategic framework for linking the energy sectors and economies of the countries in the region. These initiatives set up a common Central Asia-South Asia Regional Electricity Market (CASAREM), whereby Afghanistan is effectively operating under 10 or more separate projects, such as CASA-1000, TAPI, and TUTAP.
Source: RECCA, Ministry of Foreign Affairs of Afghanistan
CASA-1000 will export the available summer electricity surpluses from Tajikistan and Kyrgyzstan to Pakistan and Afghanistan. Recently inaugurated in Dushanbe on May 12, it is estimated that the project will cost $953 million, including contingencies and interest during construction. The main financing bodies of the project are the World Bank (WB), Islamic Development Bank (IDB), European Investment Bank (EIB), as well as United States Aid (USAID). The project will transport 1,300 MW of power from Tajikistan and Kyrgyzstan to Afghanistan (300 MW) and Pakistan (1,000 MW) over a 30 year project life span.
As initially planned, the main benefits of the project for Afghanistan would be to generate revenue and cheap electricity. But according to recent news reports, citing Pakistan’s Water and Power Minister Khawaja Muhammad Asif, the involved parties agreed that Afghanistan will abandon its share of 300 MW in CASA-1000. A lack of demand and higher electricity prices were reportedly the main reasons behind dropping Afghanistan’s electricity import plan.
TAPI is a pivotal project for Afghanistan and at the same time a priority for the region’s countries. The cost of the project is estimated at $9 billion and it will be financed by the Asian Development Bank (ADB). The Central Asia Regional Economic Cooperation’s (CAREC) Strategy for Regional Cooperation in the Energy Sector identifies TAPI as one of the links in the energy relationship among CAREC countries. The aims of TAPI are strategically aligned with CAREC’s objectives of ensuring (i) energy security through balanced development of regional infrastructure and institutions, (ii) stronger integration of markets, and (iii) economic growth through enhanced energy trading.
The TAPI pipeline will transfer 33 billion cubic meters of natural gas over 30 years from Turkmenistan through Afghanistan to Pakistan and India. It is planned that India will buy more than 50 percent of the transmitted gas. At the 22nd Steering Committee meeting of the project in Ashgabat, the four countries agreed that state-owned TurkmenGaz will lead the multinational consortium with a majority investment. And the four countries’ representatives and stakeholders signed a $200 million agreement on the primary budget allocation. The budget will be spent on technical, social, and environmental surveys of the pipeline, and directing and managing of the financial and recruitment issues of the project. Meanwhile, with the cooperation of TAPI Limited, the Afghan government has considered specific security programs for the commencement of this project in Afghanistan in 2016.
Central Asia and South Asia projects are a reliable income stream for Afghanistan. New revenue for the government will be generated from duties and transit fees levied on the roads, railways, pipeline, and electric transmission line. That is no trivial matter for a poor country like Afghanistan, where most of its revenue comes from foreign aid or drugs revenue and the government is struggling to provide basic welfare programs to the people. Meanwhile, these projects will benefit the GDP of all countries in Eurasia, particularly the Central Asian countries and Afghanistan. A report from the United Nations estimates that regional trade and construction of the energy transmission market will increase the GDP of Central Asian countries and Afghanistan by 50 percent within a decade. For Afghanistan, these projects will increase the annual GDP growth from 8.8 percent to 12.7 percent, which has the effect of creating 771,000 full time jobs in the economy.
Security in Afghanistan and the country’s devastated physical infrastructure are prominent issues, however, because these projects would pass through territories which are not fully secure and developed in terms of infrastructure. Consequently, Kabul needs to show progress in these two areas, which will be either catalysts or deal breakers for regional projects in the near future. Afghanistan must also send the message to its regional partners that the country is committed to the real implementation of the projects. The completion of these various links will revive Afghanistan’s historical and natural position in the region once again — and the sooner that happens, the better for the country.
Zabihullah Mudabber is currently pursuing an MA in Economic Governance and Development at OSCE Academy in Bishkek, Kyrgyzstan. He is also a former employee of the Ministry of Commerce and Industries of Afghanistan. He tweets @ZMudabber