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North-South Gas Pipeline: Pakistan, Russia set to formally sign amended IGA tomorrow

May 27, 2021

ISLAMABAD: In a major development, Pakistan and Russia are set to formally sign tomorrow (May 28) in Moscow the amended Inter-Governmental Agreement (IGA) for the flagship project of North-South Gas Pipeline (NSGPP). Soon after the formal signing, the pipeline project will be renamed as Pakistan Stream Gas Pipeline (PGSP). The cost of the project has been estimated at $2.25 billion by Pakistani officials, which is not yet finalised by the Russian side. Later, the cost will be decided keeping in view the scope of the project, a senior official at the Energy Ministry told The News. “Under the revised IGA, Pakistan will be having the major shareholding with 74 percent stakes in the pipeline of 1,122 kilometers from Karachi (Port Qasim) to Kasur (Punjab). And Russia will have 26 per cent equity.”

As per the IGA signed in 2015, Russia had to build the gas pipeline project on its own, with 100 percent financing. Earlier, Russia was to build the pipeline based on the build, own, operate and transfer (BOOT) model, and had to transfer the ownership of the pipeline to Pakistan after 25 years. And in the previous model, Russia had to contribute 85 per cent of the required expenditure on the project whereas Pakistan had to spend 15 percent of the capital.

The official said that Pakistan’s Ambassador to Russia, Shafqat Ali Khan, will on May 28, 2021 sign the protocol on the amendments to the agreement on behalf of Pakistan. “The Government of Pakistan has authorized Shafqat Ali Khan to sign the amended IGA. The Ministry of Foreign Affairs (MOFA) in an official letter dated May 24, 2021 signed by Foreign Minister Makhdoom Shah Mehmood Qureshi authorized the ambassador to the revised IGA with renaming the project as the Pakistan Gas Stream Project.”

On behalf of the Russian government, he said, deputy energy minister Anatoly Yanovski will sign the agreement. Once the amended agreement is signed, both sides will have to sign within 60 days the shareholding agreement, heads of agreement under various commercial arrangements and a Special Purpose Vehicle (SPV) company will also be constituted that will materialize the project.

Both the countries earlier on November 18, 2020 agreed and initialed the amendments in the inter governmental agreement. However, the formal signing on the project is being done tomorrow (May 28) after delay of almost six months.

Both the countries are attaching paramount importance to the project. Russia will increase its stakes in Pakistan by helping build the North-South Gas Pipeline Project. And the proposed pipeline will increase the country’s capacity to transport the imported gas (LNG) from the port city to Punjab. The country’s existing system has the capacity to import and transport RLNG of 1.2 billion cubic feet. The country has two LNG terminals -- one is owned by Engro and the other by the Pakistan Gas Port.

Two more LNG terminals are being installed, one by Energas and second by Tabeer company. The new terminals will increase the country’s ability to import and re-gasify LNG by 1.2-1.5 bcfd. And there is no pipeline available to transport RLNG within the country, which will be imported and re-gasified by new terminals. For transport of more RLNG, Pakistan badly needs the North-South Gas Pipeline.

Pakistan is a highly gas deficit country. The local gas production has drastically dwindled to 3.2 bcfd from 4.2 bcfd and to meet the increasing deficit of 2.5 bcfd, the country is importing LNG of 1-1.2 bcfd, depending upon the needs of the country. In the winter season, the country's demand increases manifold up to over 6 bcfd, which is not being met by local gas and imported LNG. Pakistan currently can import LNG of 1.2 bcfd but when two more LNG terminals come on stream, the capacity of the country to import LNG will increase up to 2.4 bcfd, which will help meet the growing gas deficit of the country.

Keeping in view the decreasing trend in local gas production, the projected gas deficit stands at 4 bcfd, which will also be met by the import of 1.35 bcfd gas from Turkmenistan under the TAPI project.

Pakistani officials have worked out the cost of the project at $2.25 billion, which is not yet finalized as the input from the Russian side and scope of the project will determine the accurate cost. It is yet to be decided about the capacity of the pipeline, which will determine the cost of the project. There are three proposals about the diameter of the proposed pipeline, which include 42 inches, 48 inches and 56 inches. After signing of IGA, all the technical, commercial issues and design with scope of the project will be decided.