The History Of Response From External Powers

Published Date: 02 Nov 2017

INTRODUCTION AND RESEARCH METHODOLOGY

"Energy security is second only in our scheme of things to food security" [1] 

- Dr Manmohan Singh, Hon’ble Prime minister of India.

INTRODUCTION

India’s Oil and Gas Sector

The oil and gas sector plays a very important role in the economic and political scenario of the globe. The limited oil and gas reserve along with increasing energy requirement has led to spiraling of price resulting in supply related concerns for countries around the world.

India has maintained a steady economic growth rate averaging about 6-8% in the recent years and if this trajectory is sustained, it could become the third largest economy after USA and China by 2030. [2] As a result India’s energy demand is also rising steeply. Oil and natural gas consumption is growing at approximately 4.1% and 6.8% per year respectively [3] . For a country of India’s size, multiplying population and progressing economy, energy security becomes a strategic priority. [4] But the resource augmentation and growth in energy supply have failed to meet the ever increasing energy demands. India in recent years is importing 80 % of oil and 25 % of gas for its energy sector. [5] 

The fact that India has not made any major breakthroughs in the field of renewable sources of energy, oil and natural gas would continue to hold a place of key importance in India’s economy. Therefore there is a need to secure its regular supply and continue looking out for alternate sources. To achieve this India has to aggressively work towards developing new oil fields and exploring viable transport mechanisms from the alternate regions of oil and natural gas supplies for India’s future needs.

Central Asian Republics

After the collapse of the Soviet Union in 1991, five new Central Asian Republics (CARs) emerged in India’s extended neighborhood: Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan. Central Asia’s abundant energy resources and its geostrategic location have been the key drivers behind growing presence of large number of countries in the region. Kazakhstan has substantial oil; Turkmenistan has natural gas; Uzbekistan has notable hydrocarbon resources; and Kyrgyzstan and Tajikistan have surplus hydro power. [6] 

Global Interests. Many major and regional powers sought to fill in the strategic vacuum in the region for different geostrategic and economic reasons :-

Russia has a historical and geographical advantage in this region with majority of the pipelines passing through it. Russia is going all out to maintain a strangle hold on the transit routes of the region so as to retain a level of economic and political leverage on these countries. [7] 

China has energy security interests. It appreciates that its Sea lines of Communications (SLOCs) would be interdicted in case of any future conflict in Indian Ocean region (IOR) and hence finds a significant advantage in developing the overland pipelines from this region. [8] 

USA is looking at the region, primarily, with strategic interests due to its proximity to the war on terrorism and proximity of major actors like Russia, Iran and China. Its secondary interest is in its substantial energy reserves. [9] 

Japan, Iran and Pakistan are other key external player in the region whose main interest lies in the transit routes and the rich energy and mineral resources of the region.

CARs Response. CARs have been skillfully exploiting their assets of natural resources and geo strategic location for bargaining the best deals from the external players. Though they have tried to keep the policy of multinational engagement, however, their history, geographical position and the nature of political alignment bind them up more closely to Russia, China and other Asian countries.

India’s Engagement. With diversification of energy resources as one of the major Indian policy thrust for the past decade, it is no surprise that energy co-operation is at the heart of India’s engagement of Central Asia. India’s involvement in Central Asia includes energy ties, trade and investment, and the beginnings of a military relationship. The presence of major powers in Central Asia although constraints India as a latecomer to the region [10] . India has adopted a cooperative strategy and through various initiatives like being an observer status in Shanghai Cooperation Organization (SCO), counter terrorism through Cooperation on Interaction and Confidence Building measures in Asia (CICA) [11] and investments in various sectors is trying to engage the countries in the region. It is engaging Iran and Afghanistan more aggressively to ensure the strategic investments made in the region are retained for a considerable period.

RESEARCH METHODOLOGY

Statement of Problem. To study the vast potential of energy cooperation between India and Central Asian Republics (CARs), identify the problem areas in the background of established presence of major players and chart a recommended strategy to harness oil and natural gas from CARs to India.

Hypothesis. To give a better impetus to India’s energy diversification policy, it has to engage aggressively with the energy rich CAR region to secure its future energy requirements.

Justification for the Study

India’s growing economy coupled with large population and rapid urbanization has led to sharp increase in its oil and natural gas consumption in the recent years. As per India’s energy diversification policy, Central Asia with its rich energy resources is a promising region in meeting India’s future increase in demand. The regions strategic location and rich resources have also attracted lot of international players. Thus, India’s position in this region has to be studied with an eye on the presence of the major players in the region- Russia, China and USA.

India lacks geographical contiguity with the Central Asia and this has been the main impediment in its engagement with the region. Despite CARs being located in its extended neighbourhood, India is at disadvantaged position, as its most economical transport corridor, transits from its north-western borders, which have a hostile neighbour. There have been several recommendations for pipeline and land routes to connect Central Asia with South Asia. Till date none of these routes have materialized. The study intends to throw light on these suggested routes to find economical means of drawing these reserves to India.

Methods of Data Collection

All information presented in the study has been obtained from the sources listed below. A detailed bibliography has been attached.

Books.

Professional Journals.

Newspapers and periodicals.

Online sources.

Organisation of the Dissertation

The organization of the dissertation is as follows: -

Chapter II – India’s Energy Profile. This Chapter assesses India’s energy security with emphasis on oil and natural gas reserves, production, consumption and import data.

Chapter III – CARs Energy Reserves –. This Chapter assesses the oil and gas reserves of the five Central Asian Republics.

Chapter IV – CARs - Geopolitics of Oil and Gas and India’s Engagement. This chapter studies the geopolitical interests behind rising presence of global players in the region. It would highlight the prospects and challenges involved in India’s economic and energy engagement with CARs.

Chapter V – Energy and Transportation Corridors. This Chapter dwells into the various aspects of the prospective transportation corridors for connecting Central Asia in the background of the present political environment in the region.

Chapter VI – Conclusion. In conclusion, it is attempted to summarise the relevance of energy cooperation with the CAR Region and recommend a strategy India needs to pursue towards establishing a suitable transport corridor between India and CARs.

CHAPTER II

INDIA’S ENERGY PROFILE

Energy Demand. Indian economy has been expanding rapidly at an impressive growth rate of about 6-8 %in the last decade. [12] This growth rate coupled with India’s large population resulted in substantial rise in India’s energy consumption. At present India is the fifth largest energy consumer in the world with per capita energy consumption of 682 kWh, against the world average of 2200 kWh. This energy demand is bound to grow even further and India is likely to become third largest energy consumer after China and United States by 2020. [13] 

Petroleum Sector

Though India has the fourth largest reserves of coal, it is the petroleum sector that continues to play a pre-eminent role in meeting 45% of the energy requirements of the country. [14] But there is huge gap in its oil consumption rate and production capability, which is being met from imports. A table displaying India’s petroleum sector production, consumption and import figures for 2011 is placed at Appendix A.

Oil Production Capability. The latest estimates indicate that India has around 0.3% of the world’s share of crude oil, amounting to 0.8 billion tonnes of oil reserves. [15] However view bureaucratic and political hurdles, the domestic production has remained stagnated around 35 - 40 million metric tonnes (MMT) for past decade (2001-10). In 2011, the country produced only 40.4 MMT of crude oil, while the consumption was 162.3 MMT [16] .

Refinery Demand. Though India’s crude oil production has not shown significant growth, but its refining capacity has grown by more than 20% over the last five years. [17] The country is operating 21 refineries, which not only caters for its domestic needs, but also exports petroleum products. During 2010-11, the country exported 59.13 MMT of petroleum products worth INR 1,96,112 Crores [18] . Thus demand for crude oil has further increased to run these profitable refineries.

Oil Import

Overview. The combination of rising energy demand and relatively flat production has left India increasingly dependent on imports to meet its petroleum demand. In a span of five years (2006 - 11) the total imports of oil has surged by around 43%. [19] In 2011, India was the world’s fifth largest net importer of oil, importing above 160 MMT of oil [20] . According to World Energy Outlook, India’s dependence on oil imports will grow to 91.6% by the year 2020. [21] 

Diversification. Earlier, India’s all crude oil import requirements were met from the Gulf region. However growing energy needs coupled with supply related concerns in Middle East, forced India to diversify its oil import resources to reduce dependence on Gulf countries. The Charts placed at Appendix P depicting oil imports to India from various countries/ regions during the period 2006-11, clearly indicate that India has gradually reduced its oil imports from Middle East to about 65 percent, whilst increasing imports from Africa and Latin America. [22] 

Middle East. In Middle East, majority of India’s crude oil imports come from Saudi Arabia and Iran. Although imports from Saudi Arabia have remained steady at around 27 million metric tons per year, oil purchases from Iran have gone down in the last couple of years due to sanctions from the United States. In 2010-11 imports from Iran fell to 18.5 MMT as compared to 21.19 MMT in the previous year. [23] Other significant import contributors in this region are Iraq, Qatar, UAE, Oman and Kuwait.

Africa. India gets about 20% of its total oil import from 10 African countries. Nigeria and Angola are the largest exporting countries in Africa. In 2010-11 Nigeria had supplied 16.25 million tonnes of crude oil to India [24] .

Latin America. Oil imports to India from Latin America have increased recently and contribute to about 10% of the total imports. Venezuela is now the seventh largest oil supplier to India and is supplying more than 10 MMT per year since 2010. [25] 

Overview. With 80% of oil requirement being met through imports, India has rightly chosen the path of diversification of its import basket to provide flexibility in sustaining its energy security [26] . Although Middle East region possesses world’s largest oil reserves (48.1%) [27] , it will probably be unable to raise its output significantly over the next twenty years to meet increasing global demand, as it is now producing oil at close to its maximum sustainable rate. With oil being an important driver for India’s growing economy and continuing alarming conflicts in Middle East region, [28] there is a need to secure its regular supply and continue looking out for alternate sources of oil to cater to the future increase in demand.

Natural Gas

Gas Demand. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. As per BP energy review for 2011, India had 1.2 trillion cubic meters (tcm) of proven natural gas reserves, which is even less than 0.6 % of global reserves. Also despite the steady increase in India’s natural gas production, demand has outstripped supply and the country has been a net importer of natural gas since 2004. In 2011 India had a requirement of approximately 60 billion cubic meters (bcm) of natural gas. Since production was limited to 46.1 (bcm), the balance 17.1 bcm had to be imported. [29] 

Gas Imports. India does not have a trans-national pipeline deal with any gas producing country and depends solely on Liquefied natural gas (LNG) route to cater for its 30 % of gas requirement. Though Russia and Iran have the largest natural gas reserves, India has failed to initiate gas imports from these countries. Qatar is the largest gas supplier to India, accounting for 13 bcm gas export in 2011. In addition, there are other 10-15 countries, which India engages for LNG supply; however the import volume is marginal. This is evident from the fact that Nigeria, the second largest exporter to India supplied mere 1.4 bcm in 2011 [30] .

Overview. In past one decade (2001-11) India’s natural gas consumption has increased substantially from 26.4 bcm to 61.1 bcm and is expected to rise further. India has to start looking beyond Qatar and diversify its natural gas import sources for its future energy security needs. Today majority of the nations are relying on trans-national gas pipelines for imports as transporting LNG in oil tankers is a costly venture. [31] In year 2011, out of 1024 bcm of natural gas global trade, 694.6 bcm was transported solely through gas pipelines [32] . India also needs to peruse economically viable trans national gas pipeline deals with gas rich nations to achieve the right mix of LNG vs pipeline transportation of its imported natural gas.

CHAPTER III

CARs ENERGY RESERVES

Background

Geography. Central Asia is an important region of the Asian continent surrounded by Caspian Sea in the west, China in the east, Afghanistan in the south, and Russia in the north. The five countries of the former Soviet Union Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan, and Uzbekistan are now known as central Asian republics (CARs). A map depicting the geographical locations of these five nations is placed at Appendix Q.

Energy Reserves. Out of the five CARs, Kazakhstan, Turkmenistan and Uzbekistan have substantial oil and natural gas reserves and the balance two are rich in hydro resources. According to geologists, the estimated oil deposits of the Central Asia may not be in comparison to the deposits of the Persian Gulf; however they are still considered to be of good quality and would suffice to provide a significant alternative source of energy in the 21st century. It has been estimated that the entire Caspian Sea region, adjoining Azerbaijan till Kazakhstan and Turkmenistan is known to possess significant oil and natural gas. These deposits take on enormous importance in light of expected exhaustion of the deposits of Alaska and the North Sea by the year 2015. [33] 

OIL RESERVES

Kazakhstan

Oil Fields. Kazakhstan’s proven oil reserves are estimated at 30 billion barrels by the Oil and Gas Journal (OGJ) as on 01 Jan 12. [34] The country’s main oil reserves are located in the western part of the country, where the five largest onshore oil fields (Tengiz, Karachaganak, Aktobe, Mangistau, and Uzen) are located. These onshore fields account for about half of current proven reserves, while the offshore Kashagan and Kurmangazy oil fields, in Kazakhstan’s sector of the Caspian Sea, are estimated to contain at least 14 billion barrels, with Kashagan accounting for around 9 billion barrels [35] .

Production. Kazakhstan’s production has seen an impressive expansion since 1995 with the help from foreign oil companies. It surpassed the 1.0 million barrels per day (bbl/d) production level in 2003 and steadily grew to be the second-largest oil producer in the former Soviet Union, second only to Russia. Kazakhstan’s oil production for 2012 stood at 1.6 million bbl/d [36] .

Oil pipelines. Kazakhstan’s pipeline system runs approximately 5,300km and connects to the world through either Russia, China or Azerbaijan [37] Kazakhstan’s is looking to augment the pipelines capacity to remove its dependence on Russia.

Turkmenistan

Oil Fields. Turkmenistan proven oil reserves are estimated at 600 million barrels. [38] Most of the country's oilfields are situated in the South Caspian Basin and the Garashyzlyk onshore area in the west of the country. The government is working towards increasing oil production, but the sector struggles to meet its growth goals due to a shifting interest to natural gas production, lagging foreign investment, and heavy competition for investment within the Caspian region. [39] 

Caspian Sea reserves. Turkmenistan also claims that its section of the Caspian Sea contains 80.6 billion barrels of oil, though much is unexplored. Oil deposits are located in disputed areas of the Caspian Sea, and without an agreement between Iran, Azerbaijan, and Turkmenistan on maritime boundaries, these fields likely will remain undeveloped. The disputed Kyapaz-Serdar oil and gas field linking the Turkmen and Azeri maritime border in the Caspian Sea holds between 367 and 700 million barrels of recoverable reserves, according to various sources. [40] 

Uzbekistan

Oil Reserves and Fields. Uzbekistan proven oil reserves are estimated at 594 million barrels. [41] Out of 171 discovered oil and natural gas fields, 51 produce oil and 17 of which produce gas condensates. The majority of the known oil reserves in Uzbekistan are in the Bukhara-Khiva region in the southeast of the country, and most fields are small apart from the sizeable Kokdumalak field. [42] 

Low Production. According to international Crises group (ICG) report, Uzbekistan is a ‘net oil importer’. [43] Despite substantial reserves, due to ageing infrastructure and a dearth of foreign investment and capital, production rapidly declined after 2003. During 2010, Uzbekistan produced 59,000 barrels of oil per day (bbl/d), a 60-percent decline from 2000 levels. [44] 

NATURAL GAS

Kazakhstan. Kazakhstan’s proven natural gas reserves are estimated at 66.4 trillion cubic feet (tcf). [45] Most of Kazakhstan’s natural gas reserves are located in the west of the country, with about 80 percent of total natural gas reserves located in four fields: Karachaganak, Tengiz, Imashevskoye, and Kashagan. [46] 

Turkmenistan.

Turkmenistan’s holds World’s fourth largest proven natural gas reserves at 858.8 tcf behind Russia, Iran and Qatar. This figure marks Turkmenistan as holding 11.7 percent of global proven natural gas reserves, almost equal to Qatar’s 884.5 tcf. [47] 

Turkmenistan currently exports gas in two pipes going north towards Russia which have an annual capacity of 45 billion cubic meters and in two pipes with a capacity of 20 billion cubic meters, going south to Iran. Due to less production, none of these pipes are currently working at full capacity and transport only 10 billion cubic meters. [48] 

Uzbekistan. Uzbekistan holds proven natural gas reserves of 56.6 tcf. [49] Though Uzbekistan ranks about 20 in the world but its gas sector is mismanaged and deteriorating.

Production

As evident from statistics given above, Central Asia offers considerable opportunity for meeting long term energy requirements. However there are lot of hurdles which come in the way of production and are enumerated below:-

(a) Underdeveloped Resources. While the potential for development of oil and gas resources is enormous, the production is limited by the availability of capital investment and technology in the region. [50] 

(b) Transportation Routes. The CAR nations are landlocked and are heavily dependent on the routes passing through Russia for transporting oil and gas. The only possible routes to sea are South via Iran, South Eastern through Afghanistan and Pakistan (2200 km), North via Russia to the Black Sea (3000km), West via Georgia or East to the China Sea (4800 km). Southern route is economically most viable option. However, the Iran option does not found favour with US. The problem with the SE route is the unstable conditions in Afghanistan and Pakistan. The Western route is favoured by Azerbaijan, Turkey, Georgia and the United States. However, mutual differences and excessive costs make this option difficult to implement. Eastern Route to the China Sea appears impractical and costliest, yet Kazakhstan and China have signed a 9.5 billion dollar contract to build a 2000 km pipeline from Kazakhstan to China. [51] 

(c) Structure of Deposits. The other important factor concerns the unfavorable location and structure of the oil and gas deposits as these are found at great depths and are under high pressure. In addition the elevated corrosiveness, viscosity and high sulfide content of the oil require use of the most advanced technologies, and consequent large capital investment. [52] 

(d) Inadequate Banking and infrastructure Facilities. The Multi-national oil and natural gas companies are also facing problems due to inadequate banking and infrastructure facilities in the region. [53] 

CHAPTER IV

CARs-GEOPOLITICS OF OIL AND GAS AND INDIA’S ENGAGEMENT

"Due to its strategic proximity to the Middle East and South Asia, Central Asia has emerged as a distinct geopolitical entity stimulating global attention and interests. The region has vast untapped potential of oil, gas and strategic minerals. Engagement of the Central Asian Republics is thus an essential component of our security". [54] 

- Ministry of Defence, Government of India Document.

Global Interests

Since becoming independent, the territories of the Central Asian Republics have become steadily more important for world politics. Their proximity to major world powers, e.g., Russia, China and India, the international threat of Islamic terrorism emanating now from Afghanistan and Pakistan are the drivers for their rising geopolitical importance. In addition it is their promising reserves of energy and raw material deposits which are fuelling the great powers’ strategic interest and competition amongst them. [55] 

This mounting rivalry is no more limited to the great powers (Russia and US). Even more regional countries like India, Pakistan, Iran, Turkey and others are expanding their political and economic ties with the Central Asian states leading to the ‘New Great Game’. [56] All, these interventions are inherently problematical in character and diverse in their implications. The geostrategic and economic interests of the various nations in CARs are enumerated in succeeding paragraphs.

Russia. Russia’s long-term interests in Central Asia are very clear and unambiguous.

(a) Military Cooperation. Russia feels that conflicts in Central Asia would create a power vacuum that could develop security challenges for Russia. Russia desires to keep the CARs in its sphere of influence as far as possible to ensure their cooperation, not only in energy supply, but also in other areas of strategic importance. [57] Russia’s interest is to pursue military cooperation with the Central Asian countries to avoid any strategic partnership being built up with the U.S. [58] 

(b) Economic. Russia sees CARs as economic and energy partners and wants to maintain stability in Central Asia for import of petroleum and gas. Export of oil and gas form 60% of the Russia’s revenues. Despite the fact that Russia has rich oil and gas resources, it imports huge quantities of oil and gas from these countries at low prices to supply it to the lucrative European markets. By exploiting its position as a transit country for energy supply to Europe, Russia has signed different agreements with the CARs in field of energy. Russia is using its position of importance as the pipe lines have to pass through their country and as a result it is bargaining hard with these countries to get the best deal and export oil to their benefit. [59] 

United States. Central Asia is an area whose importance to the United States has been growing and it has assumed more importance post 9/11 attack. Over the years, CARs are facing constant challenges stemming from pervasive internal misrule and the continuing interest of terrorist organizations in overthrowing local regimes. In the views of Stephen J. Blank, "United states has its significance, first, strategic due to its proximity to the war on terrorism and major actors like Russia, China, Iran, Pakistan, and India. Only secondarily is it important by virtue of its energy". [60] The US Government is actively supporting American companies in Central Asia involved in oil development as well as has been promoting the idea of Western route, which places, it in conflict, with Russia and China. [61] However in recent times US is promoting oil diplomacy instead of state diplomacy and its influence on this region is diminishing due to its reduction of financial aid and non-participation in common economic goals of CARs. [62] 

China. At the outset, China strategy was of constructive cooperation with the Central Asian states that could guarantee regional security and border stability. However, Incident of 9/11 and the subsequent strengthening of the USA’s military-political presence changed the alignment of forces in and around the region to the disadvantage of China. After developing appropriate conceptual solutions, Beijing has significantly accelerated its attempts to consolidate stability and strengthen its influence in the region, placing major emphasis on the economic component of relations. [63] Russia and China both want to contain US influence in the region. [64] As per Chinese energy security policy, this region is a promising alternative to Middle East oil and therefore China has invested heavily in joint ventures with CARs especially Kazakhstan and Turkmenistan, for oil and gas exploration and pipelines. [65] In present times, Chinese interests in Central Asia are looking beyond regional security to encompass geopolitics and most importantly energy security. [66] 

Iran. Iran has always pursued a flexible policy in Central Asia so that it has all its options open for expanding its influence in the future. Iran has cultural and religious links with the CARs. However there are certain frictions in relations with regard to the legal status of the Caspian Sea. Iran has refused to adopt the majority opinion of the median line, which may reduce its Caspian Sea share from 20 to 13%. However the fact that Iran forms the central hub for the Southern sea route for transportation of energy and goods from Central Asia will surely enhance the engagement between Iran and CARs in the long run. [67] Though in recent times, amidst fears of greater US influence in Central Asia and Afghanistan, Iran has intensified its diplomacy and economic engagement in the Central Asia, however its influence in the region is still marginal. [68] 

Pakistan. Pakistan realigned its foreign policy in light of the geo-strategic importance of Central Asian states in the new security scenario after the end of the Cold War. Pakistan’s main objectives in Central Asia are in countering India’s influence and its desire to be an energy transit-corridor in South Asia and the Asia-Pacific region Initial efforts by Pakistan to have its presence in Central Asia have not been successful because of its unclear foreign policy objectives. However due its geo-strategic location, and its links and influence on the extremist groups, Pakistan cannot be ignored from the geopolitics in Central Asia. [69] 

INDIA’S ENGAGEMENT

India’s Foreign Policy. During the Soviet Era, India had privileged links with Central Asia. However post-independence of CARs in 1991, whilst China, US, Russia and even Japan were establishing its foothold in the region, India, on the other hand, preferred to stay indifferent from the geopolitics in the region. [70] With India’s rising stature, India considers Central Asia as part of its extended/ strategic neighbourhood. It has now rolled out the ‘Connect Central Asia’ policy and aims to build a long term economic and strategic partnership with the region. [71] 

India’s Interests. [72] 

Economic. The abundant energy reserves of CARs are undeniably, India’s primary focus areas, but it is also looking at enhancing its trade and investments in the region. In addition to energy, pharmaceuticals, textiles, tourism and Information technology are also potential trade areas [73] .

Geopolitical. Besides economic engagement, India in fact has major political reasons to engage with the CAR. They relate to New Delhi’s concerns towards militant extremism, and regional balance-of-power considerations related to the U.S, Pakistan and China. [74] India is also concerned about the security and stability of Afghanistan, which shares boundaries with Tajikistan, Uzbekistan and Turkmenistan. It is therefore engaging Tajikistan as a strategic Partner as it shares border with both Afghanistan and is narrowly separated from Pakistan Occupied Kashmir (POK). [75] 

Diplomatic Initiatives

Visits. The recent high level visits from both sides, notably, Kazakh President Nursultan Nazarbayev’s visit to New Delhi and Indian President Pratibha Patil’s visit to Tajikistan in 2009, [76] Prime Minister Manmohan Singh’s visit to Kazakhstan in 2011 and Uzbek President Islam Karimov’s visit to India in May 2011 are all reflective of growing political ties between India and the CARs. [77] S M Krishna, the first Indian External Affairs Minister visit to Tajikistan in nine years on 04 Jul 12, underlined the importance of India’s ‘Connect Central Asia’ policy and its engagement with the resource rich region [78] .

Shanghai Cooperation Organisation (SCO). All the CAR nations except Turkmenistan are members of SCO. India, who has observer status at SCO, has realized the influence SCO has in the region and has initiated diplomatic measures to play more meaningful role in the organization [79] .

India-Central Asia Dialogue. As the diplomatic initiative, the first India-Central Asia Dialogue was organised on 12-13 Jun 12 in Bishkek, Kyrgyzstan. [80] During the event, India launched e-network for Central Asia which is seen as a major step towards building a long term partnership with the region [81] .

Response from External Powers

The established presence of major players, limits India’s reach as a latecomer to the region. However India has a distinct advantage that it poses neither a security threat to the region like Russia, nor an economic threat like China. [82] CARs see India in the role of a balancer in present strategic environment of rising Chinese dominance and declining Russian presence. [83] View mutual interests involved, the bilateral relations are steadily improving with the Central Asian countries especially Tajikistan [84] , Turkmenistan and Kazakhstan.

At present interests of major players active in the region are balanced and will not lead to any mutual conflicts on India’s growing presence. India has strategic partnership both with US and Russia. Indian and Russian perceptions about the future role of China in Central Asia are likely to coincide. [85] US had been very supportive of India’s Central Asia policy as it believes India’s active presence in the region will contribute to stability and development in the entire region and help Afghanistan to integrate more fully into its neighborhood. [86] In the energy sector there have been missed opportunities in the past especially to China. But India is slowly progressing on this front with its energy diplomacy in the region [87] .

ENERGY COOPERATION

India-Kazakhstan.

Satpayev Project. The Oil and Natural Gas Corporation Videsh Limited (OVL) signed a tripartite agreement with Ministry of Oil and Gas of Kazakhstan and KazMunai Gas (KMG), the national oil company of Kazakhstan for acquisition of 25% participating interest in Satpayev exploration block in 12 Oct 2011. [88] Satpayev Block is located in the Caspian Sea covering an area of 1482 sq. km. at a water depth of 5-10 meters. The agreement is the first breakthrough for India in the Central Asian energy sector. [89] 

Other Oil Exploration deals.

On 27 Nov 12, OVL declared, that it is set to buy US energy giant ConocoPhillips 8.4% stake in the Kashagan oilfield in Kazakhstan's Caspian Sea area for $5 billion. The deal is likely to be completed in the first half of 2013 and would also be the largest acquisition by ONGC's overseas investment arm. [90] 

India's Gail Ltd, a gas infrastructure firm, had offered its services as a project consortium partner in Sino-Kazakh pipeline. Gail had also offered to invest in gas processing and petrochemical plants in the Kazakh towns of Atyrau and Akhtau and to improve oil recovery in older fields. [91] 

OVL also has a 15 percent ownership stake in Kazakhstan’s Alibekmola oil field and has announced a $ 1.5 billion investment in the joint Russian-Kazakh Kurmangazy oil field in the Caspian Sea. Additionally, Kazakhstan has offered India rights to develop the Karzahanbas oil field [92] .

Other Key Areas

TAPI. The Turkmenistan–Afghanistan–Pakistan–India Pipeline (TAPI) is a proposed natural gas pipeline being developed by the Asian Development Bank. On 23 May 12, India, Pakistan, Afghanistan and Turkmenistan, inked the historic Gas Sales Purchase Agreement (GSPA) for the $7.6-billion TAPI gas pipeline. The project is likely to be completed over a period of five years. [93] 

Hydro-Electricity. Export of electricity from CAR to India has also been under discussion. Tajikistan and Kyrgyzstan which are a potential rich source of hydroenergy have developed only a relatively low percentage hydro generating capacity. Tajikstan overall hydro power potential has been placed at 40,000-80,000 MW. Indian companies BHEL and NHPC have recently upgraded Tajikstan’s Varzob 1 Hydro power station. [94] However huge investments required towards dams and new transmission lines going through volatile regions of Afghanistan and Pakistan have prevented much progress in the hydro energy cooperation. [95] 

Nuclear Energy. Kazakhstan has about 15% of the world’s uranium reserves and by 2018; its uranium production is expected to rise to 30,000 tonnes making it the largest producer in the World. Even Uzbekistan has world’s seventh largest Uranium reserves. [96] India has shortage of uranium reserves and sanctions imposed on it (since 1974) prevented it from importing uranium. [97] However a waiver from the Nuclear Suppliers Group (NSG) in 2008, allowed India to import high grade Uranium under certain conditions. Accordingly Nuclear Power Corporation of India (NPCIL) has signed an agreement with Kazakhstan in 2009 for supply of Uranium. [98] . Though uranium deal with CARs is still in preliminary stage, but the region has promising prospects in nuclear energy cooperation.

Despite above initiatives, India has yet not made any significant breakthrough in terms of economic cooperation and its trade with Central Asian Region is pegged at a mere $ 500 million. [99] Poor infrastructure, inadequate banking facilities, visa problems in Central Asia and lack of awareness in India about the region are the major roadblocks in the expansion of the trade. However the primary area of concern still remains the lack of connectivity with the region which impedes India to reach out to the CARs. [100] Therefore, India needs to quickly come up with an interconnecting transport corridor which would boost the economic cooperation with the region.

CHAPTER V

ENERGY AND TRANSPORT CORRIDORS

"We face some natural obstacles like limited land connectivity and the limited size of Central Asian markets. India has thus not seen the sort of commercial interaction in Central Asia, which we saw in South East Asia, East Asia and West Asia" [101] 

- E Ahmed, India’s Minister of State for Foreign Affairs.

The lack of direct routes between India and Central Asia has been the major roadblock in substantial trade and energy engagement. Despite its present limited access to the landlocked CAR’s region, India has shown ample interests in accessing these energy resources by exploring alternative access routes.

INTERNATIONAL NORTH SOUTH CORRIDOR

Background. Russia, Iran, and India signed the international North South Transport Corridor (INSTC) agreement in the back drop of the second Euro Asian Conference on transport in St Petersburg in 2000. The project envisages a multi-modal transportation network (ship, rail, and road route) for moving freight from South Asia to Europe through Iran, the Caspian Sea, and Russia. The corridor has generated lot of interest internationally as it is an attempt to make trade between Asia and Europe time saving and cost effective. Later Belarus, Kazakhstan, Tajikistan, Kyrgyzstan, Turkmenistan, Armenia, Azerbaijan, Turkey, Ukraine, Oman and Syria added their signatures, implying their interest in this trade route. [102] 

Asia-Europe Connectivity

UNESCAP. The Corridor got further boost, when the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) presented a study in 2001, where the North-South Corridor was shown as an integrated part of the overall Trans Asian Railways (TAR) network. [103] The United Nations is actively pursuing this project and held an intergovernmental conference on 12 Mar 12 for progressing the Trans-Asian Highways and Railways network. [104] 

Routes. The North-South Corridor will link Northern Europe to South Asia via Persian Gulf. The main route starts in Helsinki, Finland, and continues through Russia to the Caspian Sea, where it splits into three routes [105] as described below:-

Caucasus Route. It is the western route passing through Azerbaijan, Armenia, and western Iran.

Caspian Sea Route. It is the central route passing across the Caspian Sea to Iran via ferry.

Central Asian Route. It is the eastern route passing through Kazakhstan, Uzbekistan and Turkmenistan to eastern Iran. Railways serve as the backbone of connectivity within CARs. On the other end, the existing soviet railway infrastructure connects Central Asia with Russia

The routes converge in the Iranian capital of Tehran and continue to the Iranian port of Bandar Abbas. [106] Thereafter via sea route this will be connected to Mumbai port of India and subsequently to South Asia.

India’s Role

Interests. The Government of India had initiated this project with the view to enhance trade relations with Russia and Central Asia. The route is expected to offer both quicker and cheaper transportation. The delivery time between Russia and India will be reduced by 15-20 days [107] as it cuts down the distance by 10,000 kms (from 16,000 kms to 6000 kms). The different branches of the corridor would, in due course connect India with the Central Asian States as well. [108] One of the added advantages is that this route bypasses Pakistan, with which India continues to have strained relations and also Afghanistan which continues to be in state of turmoil view Taliban threat.

Recent Stand. Despite its huge benefits, the project failed to make much headway over the past decade. However in recent times due to several developments such as India’s growing stature, China rising presence in Central Asia and remote possibility of accessing Central Asia through hostile Pakistan, India in focusing on INSTC with utmost urgency. [109] India is now taking charge of the crucial transportation network, by pursuing the ‘missing links’ to make the corridor operational for initial run by 2013. [110] Some of the salient initiatives taken by India are described below:-

India had taken a major step in arranging the meeting of the 14 stakeholder countries including Iran, Russia, and countries of Central Asia in Jan 2009 to push the idea of this project and its implementation.

A three-day meeting of experts from 16 countries was held at New Delhi in May 2012. The meeting proposed formation of two four-nation groups to resolve issues of Infrastructure, funding and customs. Iran along with Russia and India will be in both groups. [111] 

During Iran’s foreign Minister Ali Akbar Salehi’s visit in Jun 12, India has even offered Tehran financial contribution for its part of INSTC infrastructure.

Challenges. Despite above stated initiatives, the project is still likely to take few more years view several roadblocks as explained in subsequent paragraphs. [112] 

Infrastructure. Being a multi transport corridor, the roads, rails and ports needs restructuring and upgradation. Railways sections in various parts are in progress of upgradation and the missing links are still to be constructed. [113] 

Inadequate Funds. None of the three main parties of the INSTC has the financial capacity to take up such a huge task. A three-day meeting of experts held in India in May 2012 indicated the need for funds to the tune of $700 million (over Rs. 4,000 cores) to ensure that portions of the proposed East-West corridor connecting the Persian Gulf to Central Asia and China.. [114] 

Technical Problems. Since this corridor passes through many countries in Caucasus, Central Asia and Caspian regions a framework of custom regulations, border inspections and transit fees will have to be mutually worked out between these countries.

US-Iran Relations. North South Corridor is based on Iran being the hub of all activities. Political relations between Iran and the United States (US) had been hostile since Islamic Revolution in 1979. US fears that Iran is developing nuclear weapons and has been instrumental in passing various economic and military sanctions against Iran. [115] Therefore some western countries are reluctant to opt for a route that runs through Iran. However despite US opposition, India is pursuing INSTC with Iran being the pivot for the sea borne trade. [116] 

INDIA – IRAN - AFGHANISTAN LAND ROUTE

Background

This route was the ancient silk Route that helped to sustain trade between Asia and Europe through the Central Asian regions. The India-Iran-Afghanistan (‘Garland Road System’) offers a viable alternative for India and Afghanistan for bypassing Pakistan which blocks land routes. It connects Chabahar (Iran), Melak (Iran), Zarang and Dilaram in Afghanistan. [117] 

The first meeting to discuss the proposed route took place on 04 Jan 03. The plan comprised of two infrastructure projects. One part is to be financed by Iran which will connect Iran’s Chabhar port to Melak and then connect it to Zaranj with a bridge. The second part was to be undertaken by India and comprised building of the 218 km Zaranj-Dilaram road. [118] 

Benefits

Afghanistan and Iran Interests. All the three countries tend to gain immensely on realization of this land route. By developing Chabhar port, Iran is trying to reach out to Central Asian and South Asian Markets. For Afghanistan the proposed route gives an alternate route bypassing Pakistan to the nearest sea and the international markets. [119] 

India’s Interests. With the proposed route, India will have access to Afghanistan bypassing Pakistan and its trade with Iran would get a boost with development of Chabahar port. This corridor also has the prospects of land link to Central Asia through Uzbekistan. [120] 

Present Status

Financial Aspects. India has spent about US$ 136 million to build the 225 km road from Delaram to Zaranj and handed over the same to Afghanistan on 22 Jan 2009. [121] Tehran has already invested $340 million to complete 70 % of the port construction. However view imposed economic sanctions, Tehran expects Delhi to come up with a closing $100 million aid for its Chabahar road up gradation. [122] .

CARs Linkage. This corridor is planned to be linked to Uzbekistan by connecting Delaran-Herat-Naibabad-Khiraton-Termez route [123] . Currently US and NATO forces are using the Northern Distribution Network.to route 70% of their supplies from Uzbekistan side to northern Afghanistan. After the US and NATO exit Afghanistan in 2014, India plans to extend this road network to link up with the Zaranj - Delaram road that leads to Iran. [124] 

US Support. Surprisingly, US has come out in support of the agreement between India, Iran and Afghanistan on the development of the Iranian Chabahar port saying that the project would help in the development of trade and commerce in the region especially Afganistan [125] .

INDIA CHINA SILK ROUTE

The idea of this corridor originates from the ancient silk route that traditionally linked India and Central Asia through China’s Xinjiang province. Over the past decade, China and CARs have facilitated various transit transport systems through Xinjiang region for mutual trade. India could explore this corridor for connectivity with Central Asia.

Route. There are two land cum pipeline proposals both passing through Xinjiang regions, which are explained below:-

Ladakh-Xinjiang-Kyrgyzstan-Tajikistan via Kashgar route. The route comprises of land cum air linkage between India-Xinjiang (Delhi-Kashgar) and a pipeline transporting natural gas from Xinjiang to India through the Karakoram passes in Ladakh. [126] 

Kazakhstan-Western China-India. This route follows north south direction along the existing railway lines and roads in Kazakhstan, Western China and India. The entry point to India could be the Lipu-Lekh Pass in Uttarakhand, which has been opened for border trade with China since 1992. The total distance is less than 3,000 kms as compared to the over 5,000 kms long route via Iran. The route under consideration already exists and only requirement is the Sino-India border link. [127] 

Opportunities. The opening up of Indo-Sino Silk route will have significant advantages as explained below [128] :-

Shorter Route. The proposed routes involve only one country (China) as a land-link between India and Central Asia and therefore much shorter, as compared to the longer western routes traversing through Iran and Afghanistan.

Mutual Trade. Significant trade volumes exist for markets in India, China, and Central Asia. The proposed routes will not only cut down transportation costs of traded items but also give China significant transit fees revenue.

Strategic Benefits. The route will give certain distinct strategic advantages. Firstly it could help counterpoise Pakistan’s plan for an 800 km long railway from Gawadar to Kashgar. Secondly India would gain access to the transcontinental transport corridors Western Europe – Western China which are already under development.

Challenges. The issue of security and territorial disputes between India and China are the major roadblocks. Therefore there is hardly any possibility of such route materializing in near future. [

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