First day of talks on PSGP: Pakistan’s draft for accord found not up to the mark

ISLAMABAD: Pakistan and Russia here on Monday kick-started talks with an aim to finalize the shareholding and facilitation agreements for their flagship Pakistan Stream Gas Pipeline Project of paramount importance.

Both sides on the first day of talks discussed the "Key Issues of the Shareholders Agreement" one by one. It was observed that the shareholding draft prepared by the Inter State Gas System (ISGS) was not up to the mark, keeping in view the international requirements needed to make the agreement acceptable to both the countries.

However, Russian Nominated Entity Pakstream LLC will give today (Tuesday) a presentation on its draft of a shareholding agreement, which was prepared by an international law firm. The Russian-nominated entity Pakstream LLC’s official will give a presentation on video links. The 14-member Russian delegation, headed by Vladimir Shcherbatykh, Director General of Pakstream LLC, participated in the talks. The Pakistan side was headed by Secretary Petroleum Dr Arshad Mehmood and comprised top officials of ISGS and senior officials of the Petroleum Division.

It is pertinent to mention that Pakistan will have 74 percent shareholding in the project and Russia 26 percent. The federal cabinet has already accorded approval to the sovereign guarantee for the loan Pakistan will borrow from Russian lenders to finance 74 percent shareholding.

One of the senior officials of Finance Division said on the sidelines of the talks that the finance ministry has no amount of Rs325 billion with it which was collected under the GIDC suggesting it would be better for Pakistan to ask Russia to have majority shares and complete the project through its own 100 percent financing. Otherwise, the government will have to arrange the loan from Russian lenders against its 74 percent shareholding and will have to extend the sovereign guarantee too.

In 2015, an IGA (Inter-governmental Agreement) was signed under which Russia will provide 100 percent financing for the pipeline project. However, on May 28, 2021, the amended IGA was signed keeping in view the availability of GIDC amount with Pakistan and Russia shareholding at 74:26 percent respectively.

Under the amended IGA signed in Moscow on May 28, 2021, with Pakistan having 74 percent shares and Russia 26 percent, Pakistan requires to provide almost $2 billion against its shareholding and Russia needs to come up with $700-800 million investment as per its 26 percent shares.

Officials say that since the Finance Division has utilized the GIDC amount to finance the budget deficit and it has no money to fund its shareholding of 74 percent, so it would be better to ask Russia to have majority shares with provision of 100 percent funding. They said asking Russia to provide debt against its 74 percent shareholding is not a sane decision as Russian lenders will not be able to provide huge loans of $2 billion on short term notice at reasonable interest rate and more importantly Russian financial institutions will seek from Pakistan the fulfilling of ‘terms and conditions’. In earlier talks, Pakistan offered 49 percent shareholding to Russia, the official said, but Moscow did not accept the offer saying its role will not be dominant in running the gas pipeline project having either 26 percent or 49 percent shareholdings.