The government on Monday approved the construction of Russian-funded 1,100 km long North-South gas pipeline on Build Own Operate and Transfer (BOOT) model and sought legal advice for setting up a special purpose vehicle for project execution to deflect adverse impact of sanctions against the Russian company.
In addition to approving the execution strategy of the North-South pipeline, the Economic Coordination Committee (ECC) of the cabinet also approved Rs95 billion settlement of power sector dues that included Rs25 billion fresh borrowing.
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The ECC approved the BOOT strategy for the execution of the 1,100 km long North -South Gas Pipeline Project, which will start from Nawabshah and end at Kasur, near Lahore. Russia would own the pipeline for a period of 25 years, according to the official documents.
Russia has nominated RT-Global Resource Company for the execution of the project. However, the company is on the sanctions list - a concern that Pakistan raised with Russia in January this year during a delegation-level visit to Moscow.
In order to address Pakistan’s concerns, the Russian side proposed to execute the project through a Special Purpose Vehicle (SPV) to be registered in Pakistan, the documents showed. However, the ECC has directed the Ministry of Law to give legal opinion within a week whether the proposed SPV is covered under the Government-to-Government cooperation agreement that both the countries signed in October last year. In case, the SPV is not covered, the Ministry of Petroleum will again present the case to the ECC for its consideration.
The ECC also allowed Inter-State Gas System (ISGS) to give guarantees to Russia on behalf of Pakistan. The Ministry of Finance has been authorised to give counter guarantees. Russia has sought guarantees that Pakistan will buy a minimum of 1.2 billion cubic feet gas per day, which the government expects to lift while anticipating additional 1.9 billion cubic feet gas demand on SNGPL system.
The ECC also constituted a price negotiation committee to negotiate the project details and pricing with the Russian side.
The ECC agreed to decouple Gwadar-Nawabshah LNG Terminal and Pipeline Project. It also allowed the completion of this project on BOOT basis. The ECC directed the Ministry of Petroleum to complete all codal formalities and directed that it must be ensured that the revised strategy does not result in any cost escalation. It was further decided that Secretary Petroleum will chair the Price Negotiation Committee, while Secretary Law, Secretary BoI, representative of Finance Division, SNGPL MD and ISGS MD shall be members of the committee. The price-negotiation committee will finalise details for giving contract for construction of Gwadar-Nawabshah gas pipeline to a Chinese company.
On a proposal submitted by the Ministry of Water & Power, the ECC approved to book Rs70.2 billion power sector losses. These losses were accumulated due to charging less than the standard power tariffs from the consumers of Federally Administered Tribal Areas and Khyber-Pakhtunkhwa.
The Finance Ministry said that Rs70.2 billion were the non-cash settlements among various government entities and would not have any bearing on the budget.
The ECC also approved issuance of sovereign guarantee by the Ministry of Finance in respect of syndicated term finance facility amounting to Rs25 billion for the power sector. The ministry will borrow the money to partially bridge a gap of Rs64 billion that has surfaced due to charging less than the standard power tariff rates from the consumers of Azad Jammu and Kashmir.
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The money will be subsequently recovered from the electricity consumers through surcharges.
On the issue of LPG Air Mixture Projects, the ECC decided that the Council of Common Interests has already approved LPG Policy 2016 and therefore no further approval from the ECC was required in the matter. Now it was up to Ogra to implement the approved policy in letter and spirit, it added.
Published in The Express Tribune, April 12th, 2016.
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