Govt considers reviving Pakistan-Russia gas pipeline project

Contemplates shifting its ‘starting point’ from Karachi to Gwadar

Zafar Bhutta February 02, 2023
design: mohsin alam


Pakistan is considering shifting the ‘starting point’ of the Russia’s Pakistan Stream Gas Pipeline from Karachi to Gwadar, a move likely to help resume work at the abandoned LNG Gwadar Pipeline Project that connects with Iran.

In 2015, Pakistan and Russia signed an Inter-Governmental Agreement to execute the North South gas pipeline project which was later renamed the ‘Pakistan Gas Stream Project’ to transport LNG from Karachi to Lahore.

According to the initial model, Russia was to provide 85% funding whereas Pakistan was to provide 25%.

This project was on a build, own, operate, transfer (BOOT) basis which was to be transferred to Pakistan.

Initially, Russia had nominated RT Global to complete the project whereas Pakistan had nominated the state-owned Inter State Gas Systems (ISGS). In early 2016, however, soon after the nomination made by the Russian government, the US imposed sanctions against RT Global – leaving the North South Gas Pipeline Project in doldrums.

Since then, Pakistan and Russia changed the structure of the North South Gas Pipeline Project almost six times but could not find any way out to complete the project.

In July 2021, the two sides again changed the structure of the gas pipeline project and decided that Pakistan’s state-owned gas companies will hold 74% of the shares whereas the Russian firms would own 26% shares.

This meant that the Pakistani companies were to invest 74% of the total funding required whereas the Russian firms would provide 26%.

The government companies were meant to invest from the Gas Infrastructure Development Cess (GIDC) proceeds, worth over Rs400 billion, being held by the textile and fertiliser companies.

While the Supreme Court of Pakistan decided to receive the pending collection on account of GIDC from the private sector in instalments, the lower courts, however, granted stay orders. The funds are now held by the fertiliser and textile companies again.

Given this situation, the government of Pakistan is considering two options.

Under option one, the petroleum division mulled over changing the starting point of the Pakistan Gas Stream Pipeline from Karachi to Gwadar.

Earlier, Pakistani company ISGS and Chinese companies had worked on the Gwadar LNG pipeline which was supposed to connect to the Iranian border to complete the Iran Pakistan (IP) gas pipeline project.

During PML-N’s previous regime, however, Saudi Arabia built pressure on former prime minister Nawaz Sharif to cancel the LNG deal with Qatar and the IP gas pipeline project amid a row with Qatar.

Under pressure, the then government shelved the LNG Gwadar Pipeline Project – the one considered to be an alternate plan to complete the IP gas pipeline project to ease pressure from Saudi Arabia. The PML-N government, however, had not shelved the LNG deal with Qatar.

“Shifting the starting point of LNG from Karachi to Gwadar means that the government of Pakistan is going to revive the LNG Gwadar Pipeline project,” a senior government official told the Express Tribune.

Sources informed that Pakistan and Russian companies had completed a route survey from Karachi to Lahore to lay Pakistan gas stream pipeline project and other formalities.

The two sides were to arrive at commercial terms and conditions to finalise the tooling fee to transport gas, government officials said, adding that shifting the starting point of the LNG pipeline from Karachi to Peshawar will mean starting the project from scratch.

“The other option is that the government of Pakistan and Russia shelve the structure of the project agreed in July 2021 and renew the initial model of handing over the entire project to Russia to execute on BOOT basis,” explained officials.

They said that even the Russian side had agreed to these models.

In the current situation, however, there is no LNG available for Pakistan and therefore, there may be no benefit in building an LNG pipeline, officials stated, adding that the second LNG terminal was also currently being run on lower capacity due to the non-availability of LNG in the global market.

Pakistan LNG Limited (PLL), a state-owned company, had tried its best to strike an LNG deal but no party had shown interest.

The current winter season has been tough for consumers due to the non-availability of LNG. State Minister for Petroleum, Musadik Malik had initiated a plan to distribute LPG cylinders to consumers. This, however, did not yield any benefit to the consumers as the LPG black market sprang into action.

Published in The Express Tribune, February 2nd, 2023.

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