Pakistan awards $2 billion LNG pipeline contract to sanction-hit Russian firm

Company will set up a special purpose vehicle to stave off impact of US curbs.

ISLAMABAD: The Ministry of Law has given the go-ahead for the award of $2 billion liquefied natural gas (LNG) pipeline contract to the energy firm designated by Russia, though the US has slapped sanctions on the company, officials say.

The approval comes after the Russian government signed a deal with Pakistan last year for laying a pipeline from Karachi to Lahore, called the North-South pipeline, to transport imported LNG. It nominated RT Global Resources for executing the project.



Russian President Vladimir Putin was due to visit Pakistan to perform the ground-breaking of the project, but the signing of a commercial contract between RT Global Resources and Interstate Gas Systems was delayed due to US curbs on the company.

At the time of signing the deal in October 2015, Russia had agreed to lend $2 billion for the project. In return, Pakistan would award the contract of laying the pipeline to RT Global Resources without inviting bids.

The Ministry of Petroleum and Natural Resources had tabled a plan for building the LNG pipeline with the help of the Russian firm in a meeting of the Economic Coordination Committee (ECC) in April this year. However, the ECC referred the matter to the Law Division for its opinion on whether the US sanctions could cause problems for the project.

According to officials familiar with the development, the Russian government had suggested that a special purpose vehicle (SPV) could be set up in Pakistan to implement the project in order to avoid the impact of US restrictions.

In its legal opinion, the Ministry of Law agreed that the Russian proposal was workable and would help execute the pipeline project. There was no legal bar on awarding commercial contract to the Russian firm that would set up an SPV in Pakistan, it said.

Officials said the SPV would also be listed on the Pakistan stock market to float its shares for generating funds.



The case of Russia is different from Iran that had faced global sanctions as a country. Washington has imposed only some restrictions on the Russian firm, barring it from doing business with US companies. However, the company would be registered in Pakistan to implement the project, they said.

The pipeline that will be built by RT Global Resources, a Russian state corporation, will be 1,100km long and will have the capacity to carry 12.4 billion cubic metres of LNG per annum.

Pakistan has worked on a similar model with China according to which an LNG pipeline will be laid from Gwadar to Nawabshah and a terminal will also be built at the deep-sea port.

Russia is the second largest producer of natural gas in the world and is seeking to diversify its export markets after a standoff over the Ukrainian dispute with the European Union, its main buyer. It has also offered LNG export to Pakistan.

The pipeline will be laid on build, operate and transfer basis. The Russian company will hand it over to Pakistan after 25 years.

Pakistan will provide 15% of equity while the Russian firm will contribute 85% of financing. First phase of the project is expected to be completed by December 2017.

Published in The Express Tribune, June 24^th, 2016.

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