CCoE asks PD to decide whether it wants to build PSGP or LNG-III pipeline

ISLAMABAD: The Cabinet Committee on Energy (CCoE), in its meeting on Thursday, asked the Petroleum Division (PD) to come up with a clear mind after one month if it wanted to build the Pakistan Stream Gas Pipeline (PSGP) with 26 percent shareholding of Russian government, or it wants to build LNG-III pipeline under the consortium of Sui Southern, Sui Northern and PAPCO – the company of PARCO.

The Petroleum Division wants to build the LNG-III pipeline as an alternative project in case talks with Russia fail on the PSGP, which is also known as North-South Gas Pipeline. The Petroleum Division has made the alternative proposal based on Economic Coordination Committee (ECC) decision, taken on January 5, 2018, under which the financing was also approved for the 1.2 billion cubic feet per day gas (BCFD) capacity RLNG-III pipeline of 1,150 kilometres from Karachi to Lahore with 42 inches diameter.

The Supreme Court, in its verdict in 2020 on Gas Infrastructure Development Cess (GIDC) recovery, had named North-South Gas Pipeline Project that it should be built by using the amount of GIDC, but the new leadership at Petroleum Division now wanted to build LNG-III pipeline with the amount of GIDC as an alternative plan.

The CCoE also asked the Petroleum Division to come up with a firm project proposal after one month’s time as the government did not afford any delay in building the infrastructure required to suck in more LNG in the country’s system. The country is facing a gas shortage and the required infrastructure is also needed to import more LNG. And to this effect, two LNG terminals – Enargas and Tabeer – have also managed the construction and capacity pipeline to have the financial closure.

Petroleum Division (PD) pitched in the CCoE meeting a pipeline proposal as a contingency plan from consortium of SSGC, SNGPL and PAPCO saying PD will also ensure participation of local companies in the EPC (Engineering, Procurement, and Construction or EPC) and operations and maintenance (O&M) contracts, local manufacturing of pipeline, and maximum local technical and human resource contribution.

Under the proposal, the PD sought CCoE’s guidance on the three issues which include a) Policy directions on SHA (Share-holding Agreement) negotiations, project structure and financing arrangements; b) Firm commitment from Finance Division for advance release of GIDC instalments, commensurate with project expenditures; and c) Evolving understanding on contingency plan in case of deadlock with Russia.

The summary of the Petroleum Division also mentions that the Government of Pakistan and Government of Russian Federation signed the protocol on the amendments to the Inter-governmental Agreement (IGA) on the cooperation for the development of the PSGP project on May 28, 2021 in Moscow, Russia. The Protocol envisaged signing of a Share-holders Agreement (SHA) within 60 days from the signing of the Protocol (on July 27, 2021).

And to this effect, a draft on SHA approved by the Technical Committee, headed by the secretary petroleum was shared with the Russian Ministry of Energy on Dec 23, 2020 during the Second Meeting of the Russia Pakistan Joint Technical Committee on the project. In response, the Russian side proposed a “Heads of Terms” for SHA on March 17, 2021. The critical aspects of SHA which are also enumerated in the Heads of Terms which say that a) The Project will be implemented through a Special Purpose Company (SPC) to be incorporated in Islamabad, Pakistan; b) ISGS will have majority shareholding in the SPC (74%), while the Russian Nominated Entity will have up to 26% shares; and c) The Chairman of the Board and CEO of the Company will be nominated by ISGS, while the Project Head/Chief Technical Officer will be of Russian Nominated Entity (RNE).

3.This Division has received through MoFA a letter dated June 10, 2021 from N Shulginov, Minister of Energy of the Russian Federation. Through this correspondence, the Russian Ministry of Energy has informed that the Russian Nominated Entity for the Project has been incorporated as PAKSTREAM LLC (having registration number 1217700101211). The Russian side has written that they would like to commence negotiations on the appropriate agreements including banking instruments and commercial contracts, while indicating the readiness of representatives of PAKSTREAM LLC to arrive in Pakistan as soon as possible to do so.

The summary also says that at this point, key challenges to be addressed at the earliest include: local companies’ participation in EPC contract through local or international JV; GIDC component of financing deposited in Federal Account # 1; route alignment NOC by MoD (ministry of defence), land acquisition; completion of Project Feasibility - PPRA exemption under process for engagement of NESPAK; and alignment of completion of Project with COD of new LNG terminals.