Islamabad:
Moscow is frustrated and disappointed by Islamabad’s response to the Pakistan Stream natural gas pipeline because the latter has changed the structure of the project several times and made no progress on the trade deal amid US sanctions on Russian entities.
The project aimed to build a liquefied natural gas (LNG) pipeline from Karachi to Lahore to overcome gas shortage in Punjab province.
Sources told The Express Tribune that the Pakistani side had to face an embarrassing situation when it raised the issue 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 the agenda along with the long-term oil deal.
When the Pakistani side talked about the gas pipeline, the Russians were so disappointed that they refused to even talk about it.
The sources told The Express Tribune that the Russians advised the Pakistanis to put their house in order regarding the pipeline structure.
Initially, Russia had nominated RT Global to complete the project, while Pakistan had nominated state-owned Inter State Gas Systems (ISGS).
However, shortly after the Russian government’s appointment in early 2016, the US imposed sanctions on RT Global — leaving the project — then called the North-South Gas Pipeline — in limbo.
Since then, Pakistan and Russia have changed the structure of the pipeline almost six times, but could not 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 natural gas companies will own 74% of its shares, while Russian companies will own 26%.
This meant that Pakistani companies had to invest 74% of the total funding required, while Russian companies would provide the rest.
Pakistan and Russia signed an amended Inter-Governmental Agreement (IGA) to start construction work on the pipeline project in May 2021 during PTI’s tenure.
Pakistan’s then ambassador to Russia, Shafqat Ali Khan, signed the protocol at the IGA along with the country’s energy minister, Nikolai Shulginov.
According to a revised agreement, it has been decided that the Pakistan Stream Gas Pipeline Special Purpose Vehicle (SPV) will also be set up within 60 days of this signing to implement the project.
However, there has been no progress on a trade 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 deputy oil minister, Musadik Malik, proposed to the Russians that the project be completed on a build-operate-transfer (BOT) basis.
This was an original feature 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 would be transferred to Pakistan after 25 years.
The sources said that the Russians were so furious after the changes in the structure of the project from the Pakistani side that they refused to talk about this issue during the recent talks held in Moscow.
The way forward was that two sides had proposed the formation of an SPV to operate the project, but this joint venture was never established.
The sources said the pipeline had been delayed due to the involvement of many stakeholders in the project. They added that even some businessmen working for Russian companies in Pakistan had screwed it up.
Second, there were shareholders of Pakistan’s state-owned gas utilities, who wanted local companies to carry out the project.
Natural 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 revenues of natural gas companies.
In this way, the shareholders of the companies will also receive their piece of the cake.
Another important factor is that the textile and fertilizer barons are also responsible for the delay in the completion of the project.
These two key sectors are getting billions of rupees subsidy but have not paid over Rs 500 billion due to disruption of natural gas infrastructure (GIDC).
These sectors receive this money from customers including farmers but do not pay GIDC to the government.
Even after the Supreme Court ordered them to pay GIDC to the government in installments to complete the gas pipeline project, these sectors received stay orders from lower courts.
