Pakistan and Russia are likely to strike deals for financial and technical assistance for electricity and gas supply projects as well as expansion of steel mill during the visit of Russian President Vladimir Putin to Pakistan in September this year.
The visit of the Russian head of state is a follow-up to the Pak-Russia joint working group meeting held in the last week of June in Islamabad.
During Putin’s trip, the two countries are expected to sign a memorandum of understanding to push ahead with assistance for the power and gas supply projects. Representatives of Russian companies are also likely to accompany the president, who may announce investment in oil, gas and mineral exploration in Pakistan, officials say.
Under the energy cooperation programme, Pakistan has shown willingness to award a contract without bidding for the multi-billion-dollar Iran-Pakistan gas pipeline. Russia has also offered financing for the transnational Turkmenistan-Afghanistan-Pakistan-India (TAPI) gas pipeline project.
The government desires to strike gas project contracts on government-to-government basis only, with no role for private Russian firms. The cabinet may be asked to waive public procurement rules for the award of pipeline contracts to Russia.
The government has already floated tenders, inviting bids for construction and procurement of pipeline for the IP project, costing $1.5 billion. According to the tender terms, the firms that promise financing will get additional points.
“Russian energy giant Gazprom may also participate in the bidding with a pledge of financing,” a government official said.
At present, Pakistan is negotiating the construction of IP gas pipeline with three countries – Iran, China and Russia.
“We will award IP contract to the country which first extends financing for constructing the pipeline, staving off pressure from the United States,” the official said.
Iran has also come up with a plan to lay Pakistan’s portion of the pipeline based on a mechanism called ‘supplier’s credit’. According to the plan, Tehran will provide the pipeline and compressors on credit to Pakistan, which will make payments after two years.
Iran is also willing to provide $250 million on government-to-government basis and can extend a major part of financing from its commercial banks. Pakistan needs around $500 million to finance the pipeline.
Power, steel mill projects
“Moscow has also agreed to finance rehabilitation of Guddu and Muzaffargarh power plants and a deal may be reached in this connection during the Russian president’s visit,” an official of the Ministry of Water and Power said.
In addition to this, the two countries may enter into a deal for expansion of financially troubled Pakistan Steel Mills. During the working group meeting held late last month, they had discussed ways of enhancing the capacity of the steel mill with promise of Russian support.
Under the programme, the mill’s production capacity will be enhanced to 1.5 million tons per annum from existing 1.1 million tons. Initial cost of the project is estimated at Rs30.45 billion, though actual cost will be determined after a technical audit of the plant by a Russian company.
Russia has linked provision of financing for the project with award of contract to its state-owned firm VO Tyazhpromexport.
In the working group meeting, the Russian authorities offered $500 million for the Central Asia South Asia (CASA) electricity import project, which would bring electricity from Central Asian states.
Under the project floated in 2006, 1,000 to 1,300 megawatts of surplus electricity will be imported from Tajikistan and Kyrgyzstan. “US, World Bank and Islamic Development Bank (IDB) have also backed the project,” an official said.
Published in The Express Tribune, July 25th, 2012.