As several years have passed without any commercial development on the Pakistan Gas Stream project, Pakistan has planned to amend the structure by integrating gas storage into the scheme. Pakistan and Russia had floated the project in 2015 after Islamabad started work on liquefied natural gas (LNG) supplies with the cooperation of Qatar.
However, US sanctions on Russian entities blocked progress on the Gas Stream project. Pakistan has changed the structure of the project several times and also invited Chinese and United Arab Emirates (UAE) investors to pour investment.
However, nothing has worked out so far and the two countries have not been able to finalize a commercial deal. Now, the Petroleum Division has tabled an idea for integrating gas storage into the Pakistan Gas Stream project. Earlier, the Pakistan Tehreek-e-Insaf (PTI) government had accused the Pakistan Muslim League-Nawaz (PML-N) administration of building LNG terminals while ignoring the development of gas storage facilities.
According to the original plan, Russian companies are to build a pipeline from Karachi to Lahore to pump LNG. However, during the previous Pakistan Democratic Movement (PDM) government, it was decided to shift the starting point for LNG supply from Karachi to Gwadar, which was not welcomed by Russia.
In that regard, Pakistani officials had to face an embarrassing situation when they took up the matter before the Russians during talks in Moscow last year. Pakistan has changed the structure of the project almost six times, which has upset the Russian side. Initially, Russia had nominated RT Global for executing the project whereas Pakistan designated the state-owned Inter State Gas Systems (ISGS).
However, soon after the Russian government’s nomination in early 2016, the US slapped sanctions on RT Global, leaving the project – then called the North-South Gas Pipeline – in jeopardy. Since then, Pakistan and Russia have changed the structure several times but they could not be able to find a way out. In July 2021, the two sides decided that Pakistan’s state-owned gas companies would hold 74% of shares in the project whereas Russian firms would own 26%.
This meant that Pakistani companies would have to invest 74% of the funding whereas Russian firms would provide the rest. Pakistan and Russia signed an amended Intergovernmental Agreement (IGA) to start construction work on the pipeline during the PTI’s tenure in May 2021. Under a revised deal, it was agreed that a special purpose vehicle (SPV) would be set up for the Pakistan Gas Stream project within 60 days of the signing of the implementation agreement.
After the PTI was ousted, the Pakistani side under the PML-N-led coalition government again proposed to revise the structure of the gas pipeline. 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 the initial model conceived at the beginning of the project a decade ago. Under this model, the entire investment had to be made by the Russians and the project would be transferred to Pakistan after 25 years. Sources said the Russians were so dismayed by the changes that they refused to talk on the subject during recent talks in Moscow.
They said the pipeline had been delayed because of the involvement of several stakeholders, adding that some businessmen working for Russian companies in Pakistan spoiled it. Secondly, the shareholders in Pakistani state gas utilities wanted local companies to execute the project.
Gas utilities receive a guaranteed rate of return on assets. Therefore, the construction of an additional asset in the form of the pipeline will give a boost to their revenues. Apart from that, the textile and fertilizer barons are also allegedly responsible for the delay in the project.
These two sectors receive subsidies of billions of rupees but they have not yet deposited over Rs500 billion on account of gas infrastructure development cess (GIDC). When the Supreme Court ordered them to pay GIDC to the government in installments for completion of the gas pipeline project, they obtained stay orders from courts.
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