Deal with Russia

Another surprise on the liquefied natural gas (LNG) front greeted us last week as Pakistan and Russia inked an agreement confirming that the latter will lay a $2.5 billion pipeline to carry imported LNG from Karachi to Lahore. The $2.5 billion pipeline building agreement has once again side-stepped the normal bidding process despite the exceptional scrutiny being conducted around the entire LNG affair in the country. With an agreement still not in place with Qatar or any other country regarding formal import of LNG, the contract signed with Russia should be considered a premature one, likely to laden Pakistan’s economy with another white elephant if the former deals do not go through. The government will trumpet the agreement as a favourable one after Moscow agreed to provide a $2 billion loan in return for awarding state-run Russian firm RT Global the contract to build the 1,100km pipeline. The agreement to build the 12.4bcm per annum capacity pipeline was signed between Petroleum Minister Shahid Khakan Abbasi and Russian Energy Minister Alexander Novak in the presence of Prime Minister Nawaz Sharif.
Closer inspection of the deal suggests immensely favourable terms granted to the Russian company, including a sovereign guarantee to cover the loan, a 25-year build, own, operate, transfer contract and an operation fee that is yet to have been made public. Similarly, details of the financing terms have also not been shared for what should be considered the largest bilateral agreement between Russia and Pakistan since the former built the Pakistan Steel Mills in the 1960s. Under pressure after the conflict in Ukraine, Russia is looking for new markets for its natural gas. The first phase of the project is due to be completed by December 2017 while the second phase is set to be completed in 2019. The deal also opens up the possibility of Russia providing Pakistan LNG in the near future. With Russian President Putin scheduled to visit Pakistan early next year, the pipeline signals that Pakistan is attempting to break away from its traditional dependence on the US. That said, this pipeline – like the Pakistan-Iran pipeline before it – is unlikely to pass smoothly through all diplomatic channels. This confirms another of the major risks attached to the agreement which questions the wisdom behind the deal. While LNG is certainly a critical need for our power-crippled country, the government would be well advised to follow due process, rather than rushing through important deals which are likely to come under scrutiny later.