Pakistan Stream Gas Pipeline: Pak-Russia talks on sharing, facilitation agreements kick start

ISLAMABAD: The three-day crucial parleys between Pakistan and Russia on shareholding and facilitation agreements for the flagship project of the $3 billion Pakistan Stream Gas Pipeline have begun amid hopes that the deal would be approved before February 15, which will be signed during the forthcoming visit of Prime Minister Imran Khan to Moscow. The gas pipeline will transport gas from Karachi to Kasur (Punjab) under amended IGA (Inter Governmental Agreement) with 74 percent shareholding of Pakistan and 26 percent of Russia.

Pakistan and Russia earlier announced on November 26 during the visit of Federal Minister for Economic Affairs Division Omer Ayub Khan to Moscow that both sides will ink a shareholding agreement on the Pakistan Stream Gas Pipeline project by February 15, 2022. However, on the first day of talks, when the commercial teams began discussing and finalising the draft of shareholding and facilitation agreements, the lawyer from the CLM firm hired by Inter State Gas System (ISGS) tried prevailing over the talks by making needless objections over land acquisition. In all such high level and technical meetings, it is the commercial experts who agree or disagree on terms, while the law firms are required to draft the agreed clauses of the agreements, a senior official who part of the talks told The News.

Both sides discussed the issues involving sovereign guarantees and land acquisition, including the right of way for the pipeline. Russia's side underlined if the land acquisition for the right of way of the pipeline gets delayed, it will not only hinder the borrowing from commercial banks and financial institutions from Russia but will also delay the project. Russians clearly said that it is the responsibility of the government of Pakistan to acquire the land and ensure the right of way for the project on time. Here once again instead of the commercial team of Inter State Gas System, the CLM lawyer chipped in, saying the special purpose company constituted to complete and run the project will be provided the right of way on time and there was no need for general clause. The Russian team was insistent that a general clause about the right of way is imperative as the issue can run into complications if not resolved timely. The official sources said that the Pakistan team’s input in the talks was not up to the mark, raising eyebrows of some participants on the incompetence of the ISGS team.

Similarly, during the talks, the Pakistan side came up with a strange version saying in case of any objection from the Ministry of Defence, the land acquisition may be delayed although the Ministry of Defence has already issued no-objection certificate. “This shows how ill-prepared the Pakistan side is for talks,” the official said.

The experts are of the view that there is a dire need for both sides to determine whether this project will be feasible in terms of transportation tariff. The government of Pakistan should at least gear up the process to determine the rough tariff to know if the project of $3 billion is feasible. Islamabad requires under 30 percent equity and 70 percent loan keeping in view its shareholding of 74 percent to provide almost $2 billion and Russia needs to come up with $700-800 million investment as per its 26 percent shares.

Pakistan under 30 percent equity will provide land and a number of Rs 60-90 billion in three years at the maximum. “This means that Pakistan will arrange maximum loans, maybe of around $2 billion from Russian lenders which will escalate the cost of the project and the whole cost will be reflected in the transportation tariff which may hover around $1.5-2 per MMBTU,” said the experts.