North-South pipeline: Russia seeks to charge $1.25 per unit for LNG transport

Special purpose vehicle could be set up for laying the pipeline

ISLAMABAD: Russia has sought a tolling fee of $1.25 per unit for transmitting the imported liquefied natural gas (LNG) through the North-South Gas Pipeline, which its company will build from Karachi to Lahore at a cost of $2 billion.

The fee was proposed during negotiations between the two countries in Islamabad, say officials aware of the development.

The pipeline will be laid on the model of build, operate and transfer and its control will be handed over to Pakistan after 25 years.

Under an agreement signed between the two countries in October 2015, Pakistan will make available 15% of equity for the project while the remaining 85% of funds will be provided by a designated Russian company. First phase of the project is expected to be completed by December 2017.

Officials said Russia was seeking to charge a certain fee on its investment in the LNG pipeline, which would transport gas from Pakistan’s south to the north.

The Ministry of Law has already given the go-ahead for the award of pipeline contract to energy firm RT Global Resources, which has been designated by Russia, though it is facing US sanctions.

However, a commercial contract between RT Global and Inter State Gas Systems (ISGS) has been delayed because of the US restrictions.

According to the officials, the Russian government had proposed that a special purpose vehicle (SPV) should be set up to execute the project and avoid the threat of sanctions.

The Ministry of Law also agreed that the Russian plan was workable and would help implement the project. “There is no legal bar on awarding the commercial contract to a Russian firm that will set up a SPV in Pakistan,” it said.

The SPV will also be listed on the Pakistan stock market by floating its shares in order to generate funds for the project.

RT Global Resources - a Russian state corporation - will lay a 1,100km-long pipeline with a handling capacity of 12.4 billion cubic metres per annum and connecting LNG terminals in Karachi and Lahore.

Russia is the second-largest natural gas producer in the world and is seeking to diversify its export markets after a spat with its major buyer the European Union over the Ukrainian crisis. It has also offered LNG export to Pakistan.

Pakistan has worked on a similar model with China under which a Chinese company will lay an LNG pipeline from Gwadar to Nawabshah and build an LNG terminal at the deep-sea port.

Published in The Express Tribune, August 14^th, 2016.

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