What Benefits Would Pipelines Provide for Afghanistan?--A Case Study of the Unocal Energy Consortium

This study attempts to answer a fundamental question with respect to Afghanistan's interests from past or future energy pipelines crossing its borders. My analysis raises more questions; the questions are from a broad, big-picture perspective of the now defunct Unocal-lead consortium. The reason behind using the consortium as an example was to merely highlight its benefits or costs to Afghanistan. As I did not have the benefit of access to any of the project documentation or analyses, the values herein are hypothetical assumptions, and for demonstration purpose only.

This paper is quite simple and does not require prior knowledge in either engineering or finance fields. The author asks readers, particularly those with knowledge about the project, to read through the study from a critical angle. All comments and corrections, whether technical, methodical or grammatical, are gladly welcome. Please forward your remarks to farhad_ahad@yahoo.com.

The period 1996 -- 1997 marked my intense interest to jump on the 'Corporate America' bandwagon. I had been working for a small business in a Boston suburb for two years. Then, I had found my job -- spent on working on minute projects such as checking for refrigerant leaks in the greasy basements of convenient stores to driving around in remote farmlands to collect energy consumption data for U.S. Post Offices -- rather unglamorous, not to mention lonely, and sometimes depressing.

It all started with canceling my subscription to "Mechanical Engineering" and starting new ones to "Forbes", "Business Week", and "Fortune". I found my newborn knowledge fascinating, and in line with my ultimate ambitions. 'Corporate America' was worldly and recognized no geographical boundaries. The players represented powerful clans, sometimes more so than whole nations. For me, Corporate America represented the ultimate opportunity.

As my research went on, I came across a colorful foldout brochure more impressive than any copy of Fortune of Forbes. It was titled "Central Asia Gas Pipeline Consortium; Central Asia Oil Pipeline Project. Turkmenistan -- Afghanistan -- Pakistan", subtitled "CentGas, CAOPP". Pictures of what was to make up the route got my attention. Those from Afghanistan were barren land, rocky hills, and uninhabitable mountains. The brochure discussed a dual pipeline project, to cut across Afghanistan and connect the yet unexplored and seemingly limitless oil and gas reserves of Central Asian States to meet the energy needs of the desperate and seemingly booming Indian and Pakistani markets.

At once, the project seemed pioneering, as it would, for the first time, put Afghanistan, my homeland, on the map with the biggest energy players known on the planet. It would bypass the already rich Middle Eastern oil states entirely, and, as implicit in the announcement, it would produce a windfall like no other Afghanistan has ever seen: over $1 Billion US dollars. At that point, Afghanistan had been making the headlines for its ongoing war, and its destitute inhabitants never seemed more needy. The brochure had a contact name and phone number; I called immediately and left a message saying "I am an Afghan, and a professional in the energy engineering industry. I will be of value to your project. I am going to start business school in the fall; however, upon graduation in two years, I would like to join your team." I hung up.

After business school, I ended up working for a large Houston-based energy firm, but my first assignment after business school took me even further away from Afghanistan. With the benefit of much relevant experience, a business education equal to that of Unocal's CFO, and an in-depth study of Afghanistan's recent political turmoil and civil unrest, my perspective today is somewhat different than what it was in 1996. It all revolved about a very simple question:

Despite its obvious simplicity, I learned that hardly anyone, particularly the Afghans, had the answer. I explored a bit further, but other questions came up. The following is an attempt to expose additional questions that would need to be answered before any construction could begin in Afghanistan. Surely, the Unocal project is all but dead, but the prospect of a pipeline through Afghanistan is not; hence, and we are required to learn from history to prevent a repeat of past mistakes.

Depending on the information available to the individual, his/her spectrum of the prevailing issues, his/her values and interest in the subject, the answers to the question "What benefits would CentGas and CAOPP provide for Afghanistan?" came in along the following lines:

In all responses, it was apparent that the lens through which the individuals saw the project was narrow and blurry. Not satisfied, I opted for a fifth, previously unmentioned answer: "I don't know."

A quick search for documents on CentGas through UNOCAL's Web pages provided a short list of press releases, from the first announcement dated October 27, 1997 to the termination notice, dated February 16, 1999. While I found all of the press releases quite noteworthy, the initial press release (PR) provided the most insight into the deal. My analysis of this initial release, now history, is as follows. I was in for a set of small surprises.

Per the PR announcement of the structure of the deal, "the CentGas consortium included the following companies":

Economic theorists agree that such foreign direct investments (FDI) are, unquestionably, the next best thing to free money. However, in 100 percent of FDI projects this author has come across, at least one entity from the host country has been included to present and defend its economic and national interests. What was Afghanistan's role in all of this?

In the same press release (PR) Unocal says "the inaugural memorandum of understanding between the governments of Turkmenistan and Pakistan for the CentGas project was signed in March 1995." After half a dozen more mentions of Pakistan, there was still no mention of Afghanistan until the seventh paragraph, some 500 words later, and only passively under the heading "Turkmenistan/Afghanistan border" and more passively on the last page under the heading "Routes".

Alas comes the section titled "Regional Benefits," and it is quite telling indeed. In the very last sentence in the final paragraph it states: "Afghanistan will earn extensive economic benefits from the pipeline, both during construction and over the life of the project."

Since there is "no such thing as free lunch," one wonders why Afghanistan would expect "extensive economic benefits"? In other words, what does Afghanistan offer in exchange for expecting "extensive economic benefits?" It begs the following question:

I recalled one day in business school when some friends came to my apartment for a social gathering. One inquisitive classmate picked up the Unocal brochure laying on my coffee table and pronounced "not much besides rocks and deserts in Afghanistan, is there?" He was referring to the pictures of the pipeline route courtesy of Unocal. This forced me to hide the brochure from the ordinary eye so there was no visible proof laying about my apartment contradicting what I remembered from Afghanistan and was telling my friends. The expansive deserts and rocky hills would not seem to mind a mere pipeline running over or underneath them. Besides, wouldn't it be great to see the pipelines open a new, clean, direct, and safe corridor for intra-regional commerce? Hence, no harm is done, right?

Well, not so fast. Having been somewhat disappointed from the results of my first inquiry I refrained from approaching an Afghan for an answer. Pakistanis were not an option. Instead, I re-read the aforementioned PR from Unocal; it said "the 48-inch diameter pipeline will extend 790 miles (1,271 kilometers) from the Afghanistan-Turkmenistan border, generally follow the Herat-to-Kandahar Road through Afghanistan, cross the Pakistan border in the vicinity of Quetta". Did I read "generally follow the Heart to Kandahar Road"?

Is this the same road that cuts through Kandahar, Lashkar Gah, Delaram, Farah, Shindand, and Herat cities? Thanks to my life experience in capitalism, I am a pessimist in nature. So, the only images that come to mind are those of a huge gas pipeline, one with a diameter of 1.5-meters, pressurized upto 500 pounds per square inch (a tire measures about 25 psig), and cutting through each of the cities above like a hot knife through butter. The pipeline would be laying by the roadside, beneath the nearby school grounds, over the small-time shops, in the backyards of the houses, and through archaeological zones. This is not the same picture as I saw in Unocal's brochure.

It would be too premature to conclude a deal of this size and significance dead based on this one premise. After all, Corporate America has shown it can be generous and respectful of the local needs. My employer comes to mind: as the largest foreign investor in India, by a factor of 10 over the second place multinational, it installed over 400,000 trees as restitution for any environmental damage the construction of its US$3 Billion natural gas-fired Dabhol power plant may have caused. All the people had to do was write one letter, threatening an international lawsuit, and came the Corporate American forest.

In Afghanistan, we could and should give the local population the benefit of the doubt, that they will resist particularly unacceptable zones from being penetrated with this pipeline. However, for the Afghan population, imposed edicts have proven difficult to disobey, and an edict declaring the construction of the pipeline Islamic will be no exception. Still, I take comfort in the thought that at least the roadside mosques would be protected.

Neither gas nor oil pipelines are about the destruction or protection of local interests. Such is the job of an occupying force, or the local and national governments. Hence, let us discuss the real reason behind all the mayhem, even though many Afghans, understandably, hope to put it behind them or to erase it entirely from their memories. Besides, as a student in the history of business and technology, I feel the need to perform a proper analysis of this deal structure. After all, it was manipulations with this project by unkind elements that ultimately dealt Afghanistan its current state of misery. If a proper study is not performed, I am afraid that, given a second chance, we will be doomed to repeat a history all over again.

This author is aware of a mere handful of the strategic factors, mostly those disclosed in the Western media. Furthermore, a comprehensive analysis of the strategic value of CentGas and CAOPP will require a great deal of time and disk space, neither of which is available for this paper. Some are worth mentioning, and are discussed below. However, readers are encouraged to obtain a more in depth analysis and consult the World Wide Web or any of the popular books on the subject, including "Taliban", by Ahmed Rashid or "The Great Game", by Peter Hopkirk.

Most of the analysis on the strategic value revolves around the wishes of the world powers with regards to political and economic domination. This theory in itself presents a paradox in how foreign affairs are conducted by policy makers. Simply stated, while the United States defense and security analysts work hard to contain the ever-so-elastic Russians geographically -- to limit the latter's regional influence -- the U.S. economic interests necessitates unhindered access to the vast natural resources hidden in Central Asia.

Here, access is the key word. Ever since their discovery, the Central Asian States' natural resources have only benefited the pockets of their mighty northern neighbor -- a fact that has not sat well with policymakers in Washington, D.C. With the breakup of the USSR, the U.S. was presented with a previously unimagined opportunity: to tap into those same resources and, with the help of its economic might and time-tested financial models, remove the former buyer altogether from the picture.

The access routes from the seaports to the gas and oil fields up north are limited. They include those through (1) China, (2) Iran, (3) Russia, (4) Turkey via the Caspian Sea and (5) Afghanistan. For obvious reasons, China is no longer an option.

Nor is Iran as a myriad of political and other controversial issues haunt the Iran option. On one hand, the hardliner Ayatollahs remain unfriendly -- to say the least -- towards the U.S. for the latter's manipulations of past Iranian leaderships and what Iran considers a pro-Israel U.S. foreign policy. On the other hand, the U.S., under pressure from a powerful pro-Israel lobby, remains critical of Iran's support of Hizbollah activities against Israel's interests, making handshakes between the two in the near future very unlikely. Another interesting, but sad truth is Iran's support for the resistance against the Pakistani-backed Taliban militia. The fact that a major pipeline might be built through Afghanistan, and not Iran, does not sit well with the Ayatollahs. Hence, Iran benefits from the on-going war inside its neighbor's borders as it results in delays and cancellation of anything bypassing it in favor of Afghanistan. Finally, until Iran's relations improve with the U.S., and a pipeline is built to Bandar Abbas in the Gulf, Iran will be supplying munitions to keep the war in Afghanistan aflame.

With regards to Russia, the last thing the West wants to see is another pipeline through Russian soil. That leaves Turkey and Afghanistan as the last two options. The construction of a pipeline through Turkey is already underway; given the length, not to mention complexity and high cost of sub-sea high-pressure Caspian pipe design, the result is simply expensive oil -- an option already made available to the West thanks to the OPEC cartel. After much iteration of calculations, analyses, and recalculations, the most economic route remains through Afghanistan.

Per Ahmed Rashid's "Taleban", the gas reserves in Balouchistan are dwindling fast, and are predicted to fall critically short by 2010. Therefore, Pakistan remains desperate for a fresh supply of natural gas, at favorable economic terms (read very cheap), which is not an option for any gas coming from Iran. With cost of debt consuming over 53 percent of its GDP, Pakistan simply cannot afford gas at market prices. The sea route is not an option either; Pakistan cannot afford expensive liquification and regassification plants necessary in order to import gas via the sea from the Pakistan-friendly United Arab Emirates. Since the cost of each a liquification plant or a regassification plant runs about $1 Billion each, and the cost of an LNG tanker is approximately $250 million, the strategic value of CentGas in cold cash terms is $2.25 Billion for Pakistan. Note this figure does not include transportation fees Pakistan sits to collect from supplying Gas to Delhi by connecting it to the terminal in Multan via a 400-mile pipeline. Hence, the options for Pakistan are few. There is, in fact, only one option, and that is gas from Turkmenistan through Afghanistan.

Having discussed most of the intangibles, it is now the time to talk about the real reason behind everything capitalist: making money.

The project must be looked upon from two opposing perspectives. First, let us do our study from the investor's lens, or the consortium. In that regard, the commercial benefits (i.e., making money) for members of the consortium starts with the following simple formula:

The margin has to be positive, i.e., revenue greater than cost, or else there is no utility in making an investment. In fact, it is every single business' highest priority to (1) increase the revenues and (2) cut costs. Both variables are relatively easy to estimate given the today's better equipment and numerous hedging techniques and derivative instruments. We will examine each in more detail here.

For the sake of this exercise, let us assume the consortium expected a margin of $10. Hence, we have:

Revenues from the sale of oil or gas are equal to the market take price multiplied by the quantity sold. Highly sophisticated three-dimensional seismic equipment can predict the production capacity of the wells fairly accurately. The output from a typical field may have the following profile:

Global commodity traders buy and sell financial instruments called futures, forwards, options, or swaps. Any one, a combination, or all of these instruments are designed to protect corporate assets -- oil, gas or any other commodity -- against unfavorable price swings. Large consortiums or commodity producers may opt for selling all of the production, over the life of a well, at pre-known market prices. This hedging technique is called selling forward contracts. Traders maintain the forward prices, based on investor appetite to transact at those prices. The forward prices are generally shown in a plot, and may look like the following:

From here on, it is easy to calculate the revenues. For each year, or day, multiply the production amount by the corresponding forward price, thereby obtaining the revenue for that period. An annual revenue profile may appear as follows:

Since "a dollar today is more than a dollar tomorrow", we need to take into account the time value of money. A discount rate is applied to account for this value. The discount rate is also known as the hurdle rate, or the required rate of return on investment. Calculation of the hurdle rate is a science in itself, and requires a comprehensive analysis of all project risks. We will leave that out, but here is a rule of thumb: the riskier the project, the higher will be the discount rate. The return on investments with payment guarantee from the U.S. is in the 3 to 4 percent range. For an exploration and production project in South Asia, this rate can be anywhere from 15 percent to 50 percent. Assuming a 30 percent required return, and using Excel, the Present Value ("PV") of the above profile, the Revenue, is $71. (By comparison, the Revenue PV will be $40 for a 50 percent rate, $138 for 15 percent, and $283 for risk free, 4 percent hurdle rate. Note the sensitivity of the Revenue to the discount rate.)

Rearranging the equation, Cost = $71 - $10 = $61. This is the total amount that the consortium can afford to spend in order to stay on par for its budget. Afghanistan's share of fees will have to come from this figure, the project cost. To get a feel for how to figure out this amount, we will need to break it down into its components.

Costs may be broken down into three components. The first includes costs related to infrastructure development and maintenance ("IDM") -- from three-dimensional seismic analysis to, production, exploitation, processing, transportation, distribution, operating, maintenance equipment, marketing and labor costs. The second is overhead and miscellaneous costs ("Misc."), such as taxes, fees, and interest on loans. The third is royalties, due to the producing state, the Government of Turkmenistan. While the cost variable IDM is a fixed expense, royalties are generally negotiated. Royalties are what make an oil producing state like Kuwait or Saudi Arabia very rich. Notice that royalties are paid to Turkmenistan in addition to its seven-percent equity ownership in the project, which brought it $0.7 windfall from the Margin.

If we assume the IDM costs comprised 40 percent of the total, Misc. costs were another 40 percent of the total, and royalties 20 percent, then,

Hence, total take by the Government of Turkmenistan would be $12.2 + $0.7 = $12.9. As stated earlier, cost components that make up IDM are fixed and budgeted, and are hardly negotiable. This is due to the fact that oil companies obtain quotes from third party vendors for equipment, installation and maintenance, and use these quotes in their budgeting. In fact, if anything, actual IDM costs generally exceed the budgeted targets, causing these costs to go over-budget. The Margin often includes a reserve amount called contingency, set aside for such rainy day scenario, to cover overruns. On some occasions, overruns wipe out the entire margin, leaving the players with no profit. Simply because a project has no commercial value does not mean it will stop. There are often strategic reasons for such projects to continue. Furthermore, it is in the contractors' best interests to keep the project moving forward and keep their workers gainfully employed.

The consortium was essentially an oil and gas company in itself, leaving one to expect that each of the stakeholders must represent an oil company. However, it is clear that is not so. Readers should ask what are ITOUCHU Oil Exploration, Hyundai Engineering and Construction, and Crescent Group doing in the consortium? In other words, why would engineering and construction companies take equity in an oil and gas firm? After all, oil and gas business is high risk, and the risk-averse engineering firms' shareholders hardly have the appetite to participate in a risky oil and gas exploration and marketing venture.

To answer this question, one must look no further than how engineering and construction firms do business. Engineering firms generally engage in a bidding war to win subcontracts from oil and gas consortiums for specific parts of a project. In this case, ITOUCHU would be bidding for the heavy-duty excavation work, Hyundai for the engineering and construction, and Crescent for the operations and maintenance works. The motivation to acquire an equity stake is spurred by the fact that none of these firms are guaranteed to win any of the contracts if they were to submit a bid under a public bidding process. Therefore, to ensure that they are awarded the lucrative IDM American contracts -- in our example the total worth being $24.4 -- while avoiding the grueling public bidding process, the firms risked taking the equity stakes.

These firms will rest easy knowing that, as equity stakeholders, odds of them losing the contracts to an "outsider" are next to zero. They are likely to get the respective deals, and share the IDM budget between the three of them even if their bids are not the most competitive.

Assuming 45 percent of IDM is consumed by ITOUCHU, 33 percent by Hyundai and the remaining 22 percent by Crescent, and using a gross margin of 50 percent, each firm's takeaway will be as follows:

Now we are talking. Remember, the PR said "Afghanistan will earn extensive economic benefits from the pipeline, both during construction and over the life of the project." Upon examination of the above analysis, it is evident that no Afghan industry player is a participant, hence, Afghanistan will not "earn extensive economic benefit ... during construction". Unocal may argue it will hire local labor for the task. I argue Unocal means it will hire cheap labor for the menial jobs, and only when employees of ITOUCHU or Hyundai are not willing to get their hands dirty. How much cheap labor will come from Afghanistan? That will depend on Crescent's allegiance to Pakistan. Crescent, a Pakistani company, is well aware of the abundance of cheap labor in Pakistan. Why should it hire an Afghan for a janitorial or other labor-intensive task? I wouldn't, would you?

Giving the consortium the benefit of the doubt, one may take comfort in the fact that Unocal says "Afghanistan will earn extensive economic benefit ... over the life of the project." I did much research as to what that benefit might be, and who and what will truly benefit. Was it going to be the United Front force, Taliban, the nation of Afghanistan, its destitute people, a corporation, a corrupt official, a powerful businessman ... ? So far answers are few, if any. In the book "Taliban", Ahmed Rashid estimates that figure "could be US$100 million a year". Truth be told, no one really knows who will be the recipient, and how this money will be used to benefit Afghanistan.

The partner with the greatest stake in the case, Unocal, as the majority shareholder, generally has control over all decisions. Nearly all of the developing nations have laws that require the host state to be the controlling partner. China comes to mind: Coca Cola China is 49 percent owned by Coke, and 51 percent by the Chinese government. This arrangement is designed to ensure the all interests of the host nation are protected. In the Case of CentGas, or any other arrangement, Afghanistan, excluded entirely from any stake in the partnership, never had a chance at a controlling stake, even though all but a few miles of the pipeline laid inside its borders.

No Afghan should lament the cancellation, or postponement of both CentGas and CAOPP. Under their original structures, neither project represented the interests of Afghanistan in a desirable fashion, as I proved above. Furthermore, the year during which most of the discussions took place, 1998, saw some of the lowest commodity prices in history, with crude prices ranging from $10 to $15 per barrel. Low forward market prices translate into lower revenues, forcing a consortium to abandon generosity with its transport fees in favor of frugality in order to remain economically sound.

Price per barrel of crude oil on July 27, 2001 was quoted at $26.40, about where it has been for a year. The OPEC target price is in high $20's to $30 per barrel. Hence it may be speculated that this is where the price is to remain in the coming months. If negotiations were to resume today, Afghanistan would be in a much better position to negotiate significantly higher fees, not to mention structure a deal where national and economic interests of Afghanistan are represented and defended in the consortium. In other words, the PR can be more specific next time, and really mean it when it says, "Afghanistan will earn extensive economic benefits from the pipeline, both during construction and over the life of the project."

Consortium formed to build Central Asia gas pipeline

ASHGABAT, Turkmenistan, Oct. 27, 1997 -- Six international companies and the Government of Turkmenistan formed Central Asia Gas Pipeline, Ltd. (CentGas) in formal signing ceremonies here Saturday. The group is developing a project to build a 790-mile (1,271-kilometer) pipeline to link Turkmenistan's abundant proven natural gas reserves with growing markets in Pakistan. The group is also considering an extension of the line to the New Delhi area in India.

"This is a truly significant step in the development of this project," said John F. Imle, Jr., president of Unocal Corporation . Unocal was appointed by the Government of Turkmenistan to lead the project development activities and form the gas pipeline consortium. A Unocal subsidiary will serve as development manager for CentGas. "The interest shown by major international companies underscores both the attractiveness of the proposed pipeline and the significant economic benefits it can bring to the region. This project could be the foundation for a new commerce corridor for the region -- often referred to as the Silk Road for the 21st century.

The CentGas consortium will initially include the following companies, either directly or through affiliates: Unocal Corporation, 46.5 percent; Delta Oil Company Limited (Saudi Arabia), 15 percent; the Government of Turkmenistan, 7 percent; Indonesia Petroleum, LTD. (INPEX) (Japan), 6.5 percent; ITOCHU Oil Exploration Co., Ltd. (CIECO) (Japan), 6.5 percent; Hyundai Engineering & Construction Co., Ltd. (Korea), 5 percent; and the Crescent Group (Pakistan), 3.5 percent. RAO Gazprom (Russia) has indicated an interest in signing the consortium agreements formalizing a 10 percent share in the project in the near future.

The proposed pipeline will carry natural gas from the Dauletabad Field, in southeastern Turkmenistan at a rate of up to 2 billion cubic feet per day (20 billion cubic meters per year). The Dauletabad Field has independently certified reserves of more then 25 trillion cubic feet (708 billion cubic meters). The Government of Turkmenistan has guaranteed deliverability of 25 trillion cubic feet (708 billion cubic meters) of natural gas exclusively for the Central Asia Gas Pipeline. Much or all of this gas is expected to come from the Dauletabad Field.

The inaugural memorandum of understanding between the governments of Turkmenistan and Pakistan for the CentGas project was signed in March 1995.

"The formation of the consortium is another major milestone achieved in accordance with the requirements of protocols and agreements previously signed with the Governments of Turkmenistan and Pakistan," said Marty Miller, Unocal Corporation vice president responsible for new ventures in Central Asia and Pakistan.

Miller pointed out that the project still faces significant economic, political and commercial challenges, such as finalizing mutually acceptable commercial agreements and agreements with transit countries. "This project has exceptionally sound economic fundamentals, given the presence of proven gas reserves in Turkmenistan and the market needs of Pakistan and India. The Dauletabad Field has produced well over 2 billion cubic feet per day in the past and is capable of producing that volume today. With the right development program, the Field will continue to be able to produce natural gas at this rate long into the future. No other import project can provide such volumes of natural gas to these markets at a lower price."

The proposed natural gas pipeline would stretch from the Turkmenistan/Afghanistan border in southeastern Turkmenistan to Multan, Pakistan (790 miles, 1,271 kilometers), with a 400-mile (640-kilometer) extension to India under consideration. Estimated cost of the project is US$1.9 billion for the segment to Pakistan and an additional US$600 million for the extension to India.

This news release contains forward-looking information, including projections of future business plans and potential capital expenditures. Actual results could differ materially from these projections.

CentGas Consortium Members:

Unocal Corporation (U.S.), 46.5 percent
Founded over 100 years ago, Unocal is one of the world's leading energy resource and project development companies providing regional integrated energy solutions. Unocal has reserves of more than 9.8 trillion cubic feet of natural gas equivalent (1.6 billion barrels of oil equivalent) and major oil and gas production activities in Asia and the U.S. Gulf of Mexico.

Delta Oil Company Limited (Saudi Arabia), 15 percent
Delta Oil Company Limited, a private Saudi-owned company, was founded by its Chairman and Chief Executive Officer, Mr. Badr M. Al-Aiban. Mr. Al-Aiban established the original Delta entity in Saudi Arabia in 1978, and its activities have expanded significantly since its inception. Today, Delta and its affiliates comprise a diversified group of companies involved in the energy industry, real estate development, food processing and packaging, soft drink bottling and distribution, agriculture and manufacturing. The company's operations extend to Central Asia, South East Asia and other countries in the Middle East. Delta has developed a number of strategic alliances in the oil and gas industry. As a member of the Azerbaijan International Operating Company (AIOC) and the North Absheron Operating Company Limited (NAOC), Delta and its affiliates are involved in exploring and developing oil fields in Azerbaijan, as well as other Central Asian countries.

The Government of Turkmenistan, 7 percent
Since declaring its independence from the USSR on October 27, 1991, Turkmenistan has looked forward to increasing the economic strength of the new state. The country has strived to build on its traditions, values and history to form a political and economic system capable of increasing the well-being of its people, and strengthening the sovereignty of Turkmenistan. The leadership of Turkmenistan has met the challenge of reform head on, and has established many channels for swift economic development. As an independent state, Turkmenistan has much to offer to the Central Asian region and the international community. By effectively using its natural resources, continuing on a path of economic reform as can be seen in the agricultural industry, and promoting its economic potential to attract foreign investment, Turkmenistan can be assured of decades of successful economic growth. The government believes that by seeking international investment, technological and management support for its country, Turkmenistan can play a major role as the economic catalyst for the Central Asian region, and join the world leaders in the distribution of oil and gas.

Indonesia Petroleum, LTD. (INPEX) (Japan), 6.5 percent
Indonesia Petroleum, LTD. (INPEX), a Tokyo-based company, has been engaged in the exploration and development of petroleum resources, mainly in Indonesia, since 1966 in order to ensure a continued stable supply of energy resources to Japan. With its core activity area in Indonesia, INPEX is expanding its activities in East Asia, Oceania, CIS, the Middle East and Africa. INPEX and its subsidiaries are currently producing 280,000 BOEPD equity oil and gas in Indonesia, Australia and UAE.

ITOCHU Oil Exploration Co., Ltd. (CIECO) (Japan), 6.5 percent
ITOCHU Oil Exploration Co., Ltd. (CIECO) was formed in 1972 and is now involved in the exploration, development and production of hydrocarbons in Indonesia, U.K. North Sea, Australia, Pakistan, CIS Countries, Yemen, Oman and Gabon. CIECO is the core company responsible for all Hydrocarbon Exploration and Production activities within the subsidiaries and associates of ITOCHU Corporation, the largest trading company in Japan. With maximum utilization to ITOCHU's worldwide network, CIECO is well placed to continue to expand its foreign activities in the future.

Hyundai Engineering & Construction Co., Ltd. (Korea), 5 percent
Hyundai Engineering & Construction Co., Ltd. was established in 1947, and its major role was rebuilding Korea's infrastructure. Growing rapidly during the early 1960s, Hyundai built dams, bridges, buildings and tunnels, as well as industrial plants that were desperately needed. Since it launched into the international market in 1968, Hyundai has taken a place among top global general contractors, with approximately US$32 billion construction orders through 1996. As the core company of Hyundai Business Group, Hyundai has set the pace for the Hyundai Business Group which is now a US$87 billion multi-national conglomerate specializing in engineering and construction, automobiles, shipbuilding, robotics, electronics, petrochemicals, aerospace and trading.

The Crescent Group (Pakistan), 3.5 percent
The Crescent Group, in business for more than 50 years, is the premier industrial and financial conglomerate in Pakistan. More than 35 independent companies operating across Pakistan form the nucleus of the group and are leaders in textiles, jute, sugar, engineering, steel, investment banking, insurance, leasing and software development. The Crescent Group employs over 15,000 people and contributes to one percent of GNP of the country and over two percent of market capitalization of Pakistan.

Strategic alliances have helped position the Crescent Group as a leader in its core businesses, such as textile and textile made-ups. Crescent is in partnership with some of the most well-known corporations from the United States and Europe.

The Group puts heavy emphasis on keeping its projects environment-friendly, promotes education, and spends considerably on the development of human talent in safe working conditions.

Project Overview

International Pipeline Consortium
Six international companies and the Government of Turkmenistan are forming an international pipeline consortium, Central Asia Gas Pipeline, Ltd. (CentGas) to develop a natural gas pipeline that will link Turkmenistan's vast natural gas reserves with the growing markets of Pakistan and possibly India. This major new source of fuel will supplement indigenous natural gas supply.

An efficient, clean-burning fuel, natural gas can be economically and safely transported by pipeline over long distances, and priced competitively with alternate fuels.

The Resource
Dauletabad Field is one of the largest gas fields in the world. DeGolyer & MacNaughton, an internationally recognized petroleum engineering firm, has thoroughly evaluated the field's reserves. These evaluations clearly show that the field's resources are adequate for project needs, assuming production rates of roughly 1.5 billion cubic feet of gas per day (15 billion cubic meters of gas per year) for 30 years or more. The Government of Turkmenistan has guaranteed deliverability of 25 trillion cubic feet (709 billion cubic meters) of natural gas exclusively for this project. Much or all of this gas is expected to come from the Dauletabad Field.

The Market
Forecasts based on reasonable gas purchase, sales price and other assumptions show sufficient demand for the imported gas at prices that support the project's economic viability. Market analyses indicate that Pakistan's electric power generation market will be the main consumer of the imported gas.

The Route
The 48-inch diameter pipeline will extend 790 miles (1,271 kilometers) from the Afghanistan-Turkmenistan border, generally follow the Herat-to-Kandahar Road through Afghanistan, cross the Pakistan border in the vicinity of Quetta, and terminate in Multan, Pakistan, where it will tie into an existing pipeline system. Turkmenistan will construct a pipeline that will link with the CentGas line at the border and stretch approximately 105 miles (169 kilometers) to the Dauletabad Field. A potential 400-mile (644-kilometer) extension from Multan to New Delhi also is under consideration. Estimated cost of the project is US$1.9 billion for the segment to Pakistan, and an additional US$600 million for the extension to India.

Inter-Government Support
The project enjoys strong support from the governments and leadership of the three countries directly involved and has also attracted the interest of other countries. Turkmenistan and Pakistan have demonstrated inter-government support through various memorandums of understanding.

Regional Benefits
The project offers numerous long- and short-term benefits to the region. It will link plentiful supplies of clean-burning natural gas with growing regional markets, employ thousands of local people, foster regional cooperation, and enhance trade, transportation and communication. The development of pipeline-related infrastructure also will create opportunities for economic growth in other industries.

In addition to regional advantages, the pipeline offers specific benefits to the countries involved. Turkmenistan will reach new markets with its plentiful gas reserves, while Pakistan gains a reliable source of clean-burning fuel to drive its economic growth. Afghanistan will earn extensive economic benefits from the pipeline, both during construction and over the life of the project.

SOURCE: Central Asia Gas Pipeline, Ltd.

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WHAT BENEFITS WOULD PIPELINES PROVIDE FOR AFGHANISTAN?