North-South gas pipeline project in doldrums

Published: October 26, 2019


ISLAMABAD.: Pakistan has conveyed to Russia that it would not award multibillion-dollar projects to US-sanctioned entities as such a move had already resulted in hampering progress on the North-South gas pipeline project.

The $2 billion North-South gas pipeline project hit snags following Russia’s failure in providing a sanctions-free entity to implement the project.

Under the proposed plan, a gas pipeline would be built from Karachi to Lahore and Russia would provide 85 per cent financing for the project.

Challenges abound in trade with Russia

In a recent development, Russia nominated an entity – PAO TMK – whose ultimate beneficiary owner (UBO) Dmitry Pumpyansky is on the watch list of US sanctions.

Russia was insisting to make a deal with the company but Pakistan refused, saying that its ultimate beneficiary was on the watch list of US sanctions.

In the protocol execution on July 17, 2019, Pakistan and Russia proposed two options underlying the need that they were not sanctioned nor on the sanctions’ watch list, including their shareholders directly or indirectly, and had pipeline building experience.

“We appreciate that these aspects will be given due consideration in finalising the project structure and accordingly making necessary amendments in the inter-governmental agreement (IGA),” the Pakistani side had conveyed to Russian Energy Ministry.

The implementation of the North-South gas pipeline project has been severely impacted by the numerous changes enacted in the corporate structure. A sanction-free corporate structure in line with IGA between two governments remained elusive and was therefore impending further progress on the project.

Russia plans to invest $14b in Pakistan’s energy sector

In light of the international sanctions on the nominated entity, Pakistan had requested the Russian side to explore the possibility of introducing sanction-free Russian entity with pipeline building experience to move forward with the project.

“We agree to the suggestion of extending the IGA by another six months at this stage and in the meanwhile we need to amend the IGA through a protocol to the amendment already shared with the Russian side during the last meeting held in Dubai from July 15 to 17, 2019,” the Petroleum Division wrote in a recent letter sent to the Russian Energy Ministry.

Pakistan also showed willingness to include the progress of the project implementation in the agenda of the upcoming sixth meeting of the Russian-Pakistani Intergovernmental commission on trade, economic, scientific and technical cooperation which is planned to be held in Islamabad preceded by a meeting of the Joint Working Group on Energy Cooperation in December 2019.

Petroleum Division plans to revive gas pipeline projects

“As regards to your point on inclusion of PAO TMK and its UBO Pumpyansky into the IGA, we have conveyed the position of Pakistan very clearly during the course of multiple video conference, letters and the protocol of the meeting held in Dubai from July 15 to 17, 2019. We understand that there is a need to move forward with the implementation of the project obviating any chance of attracting sanctions on the project or its shareholders given its strategic nature,” the Pakistani side said.

The Russian side had made a detailed presentation in Dubai during which they presented the details of the ultimate beneficial owner of PAO TMK holding majority shares indirectly.

UBO Pumpyanski, however, is on the sanctions’ watch list. This fact had already been pointed to the Russian side and reflected in the protocol executed on July 17, 2019 that people on the watch list were in a high risk category and likely to be sanctioned.

“Our earlier communications and meetings held so far with the Russian Ministry of Energy, particularly the ones held via video conference and recently in Dubai, had clearly mentioned the grounds emphasising that such structures were sanctions or sanction watch list persons and or entities being a high-risk category should not be acceptable and not be associated with the project,” the Pakistani side added.

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