Pakistan’s changes in gas pipeline irk Russians

Moscow frustrated as no progress made on deal amid US sanctions

ISLAMABAD:

Moscow is disappointed and frustrated over the response of Islamabad towards the Pakistan Stream Gas Pipeline because of the latter changing the project’s structure several times and not making any progress on the commercial deal amid US sanctions on Russian entities.

The project was meant to build a liquefied natural gas (LNG) pipeline from Karachi to Lahore to overcome the gas shortage in the Punjab province.

Sources told The Express Tribune that the Pakistani side had to face an embarrassing situation when it took up the matter of the pipeline project before the Russians during their talks in Moscow.

The Pakistani side had visited Moscow on October 10 and the gas pipeline project was also on agenda along with the long-term oil deal.

When the Pakistani side spoke on the gas pipeline, the Russians were so frustrated that they even refused to talk about it.

The sources told The Express Tribune that the Russians advised the Pakistanis to put their house in order over the structure of the pipeline.

Initially, Russia had nominated RT Global to complete the project whereas Pakistan had nominated the state-owned Inter State Gas Systems (ISGS).

However, soon after the Russian government’s nomination in early 2016, the US imposed sanctions on RT Global -- leaving the project -- then called the North-South Gas Pipeline -- in doldrums.

Since then, Pakistan and Russia have changed the structure of the pipeline almost six times but were unable to find any way to complete it.

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

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

Pakistan and Russia signed an amended Intergovernmental agreement (IGA) to start the construction work on the pipeline project in May 2021 during the PTI’s tenure.

The then Pakistani ambassador to Russia, Shafqat Ali Khan, signed the protocol to the IGA along with that country’s energy minister, Nikolai Shulginov.

Under a revised deal, it was decided that the Pakistan Stream Gas Pipeline special purpose vehicle (SPV) would also be set up within 60 days of this signing to implement the project.

However, there was no progress on a commercial deal since then.

After the PTI was ousted from power, the PML-N-led coalition government took over and the Pakistani side again proposed to the Russians to revise the structure of the gas pipeline.

The then state minister for petroleum, Musadik Malik, proposed to the Russians that the project should be completed on a build-operate-transfer (BOT) basis.

This was an initial mode that was proposed at the beginning of the project a decade ago.

Under this model, the entire investment was to be made by the Russians and the project transferred to Pakistan after 25 years.

The sources said the Russians were so furious after the changes in the project’s structure by the Pakistani side that they refused to speak on this subject during the recent talks held in Moscow.

The way forward was that two sides had proposed to set up an SPV to operate the project, but that joint venture was never established.

The sources said the pipeline had been delayed because of the involvement of several stakeholders in the project. They added that even some businessmen working for Russian companies in Pakistan had spoiled it.

Secondly, there were Pakistani state gas utilities’ shareholders, who wanted that local companies should execute the project.

The gas companies receive a guaranteed rate of return on assets. Therefore, the construction of an additional asset in the form of the pipeline will boost the revenue of the gas companies.

In this way, the shareholders of the companies will also receive their piece of cake.

Another significant factor is that textile and fertiliser barons are also responsible for the delay in the project’s completion.

These two key sectors receive subsidy worth billions of rupees but they have not paid over Rs500 billion on account of the gas infrastructure cess (GIDC).

These sectors receive this money from the customers including farmers but do not pay the GIDC to the government.

Even after the Supreme Court ordered them to pay the GIDC to government in installments to complete the gas pipeline project, these sectors obtained stay orders from lower courts.