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

Published: June 24, 2016
The pipeline will be laid on build, operate and transfer basis. The Russian company will hand it over to Pakistan after 25 years. PHOTO: FILE

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

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.

ECC approves strategy for North-South pipeline

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.

SSGC asked to utilise idle capacity of LNG terminal

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 24th, 2016.

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Reader Comments (10)

  • Fast
    Jun 24, 2016 - 7:31AM

    Good work.Pakistan and Russia need each other and should work closely with each other, not only govt to govt but also public to public and in private sector.Recommend

  • Awais Ahmad Qureshi
    Jun 24, 2016 - 8:29AM

    A very good development in the wake of prevailing political situation with our neighbors. Recommend

  • Jun 24, 2016 - 10:34AM

    Bravo! A very good stand against the US sanctions. An SPV is the best solution. Dealings with Russia are long overdue. SalamsRecommend

  • common paki
    Jun 24, 2016 - 2:41PM

    we always welcome Russian investment, and we want more people to people contact between two countries. Thank u russiaRecommend

  • Mohammed Sattar
    Jun 24, 2016 - 3:05PM

    Pakistan should and must diversify it its dealing with other nations apart from China and USA .
    This is a very good start and it should be used as a springboard for dealing with other nations. Recommend

  • curious2
    Jun 24, 2016 - 7:53PM

    Another multi Billion “no bid” overpriced project funded by the contractor – clear example of corruption at it’s worst. Pakistan is going to end up with the most expensive power plants and related infrastructure on the planet – and nobody will accept responsibility and there will be lots of finger pointing. Recommend

  • Zaheer Ali
    Jun 24, 2016 - 9:33PM

    Thankyou PMLn for marching Pakistan towards prosperity and out of the dark electricity crisis.Recommend

  • Observer
    Jun 24, 2016 - 10:42PM

    All this is done for developing Punjab. LNG from Karachi to Lahore. Keep sucking up the small provinces!Recommend

  • Fawad
    Jun 25, 2016 - 10:04AM

    2 billion for pipeline built by Russian group, on loan given by Russia which Pakistan has to pay. Similar to CPEC, where loan is given by China to build road for China! but loan will be paid back by Pakistan.Recommend

  • Mahmood
    Jun 26, 2016 - 1:18AM

    @Curious: wake up please. $2bln for such a distance of pipe lounges is nothing. I feel Pakistanis are the most unhappy nation on the earth for its development projects. if there’s corruption, your PTI should take the govt to the court and prove it there otherwise let others work who are working for the betterment of nation. If you have any idea of Pakistan’s image/reputation in the external world, you would be thankful to Chinese and Russians for investing.Recommend

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