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Wednesday May 25, 2022

$3 bn Stream Gas Pipeline: Pak-Russia talks remain inconclusive over sovereign guarantees

February 11, 2022

ISLAMABAD: The three-day Pakistan and Russia talks on Shareholding and Facilitation Agreements on $3 billion Pakistan Stream Gas Pipeline Project (PSGP) ended on Thursday on a positive note but the issue of Pakistan defaulting on its sovereign guarantees extended to Russian lenders remained unresolved. This sticking point may prevent the signing of the shareholding and facilitation agreement during Prime Minister Imran Khan’s Russia visit.

The talks on some issues remained inconclusive, but the legal teams of both sides will finalize the draft of the shareholding agreement later, top officials who remained part of the talks told The News. During the negotiations, Moscow was represented by Vladimir Shcherbatykh, Evgeniya Neimerovets, and Anisat Bairkhanova with more officials on video from Russia while Nadeem Bajwa, MD ISGS, Syed Ali Zikria, Joint Secretary in Petroleum Division, and Faisal, a CLM lawyer, Aurangzeb, an ISGS lawyer, and Amir Khan, CFO ISGS, represented Pakistan.

It appears that both the countries may not be able to sign the shareholding and facilitation agreement during the visit of Prime Minister Imran Khan to Russia. If the government of Pakistan adopts an out-of-box mechanism to ensure approvals of sovereign guarantees from the Attorney General’s office, then both the legal teams will finalize the draft of the agreement enabling its signing during PM’s visit. An official source said that on many issues, the Pakistani side accommodated the Russian viewpoints but on some issues, there was a need to go ahead.

According to the officials, the third day witnessed tough negotiations between the Russian and Pakistani sides on the issues of sovereign guarantees, penalty mechanism in case of defaulting on the sovereign guarantee, registration of Special Purpose Company (SPC) with SECP, and which entity either SPC or the Government of Pakistan will be responsible for payment of compensation if the CoD (commercial operational date) of the project gets delayed. The discussion turned into a heated debate when ISGS ((Inter-State Gas System) informed that AG (Attorney General) office was not inclined to allow Russian lenders to confiscate the assets if Pakistan defaults on the sovereign guarantees. Rather AG office would seek sovereign immunity under which the sovereign country is immune from civil proceedings or criminal prosecution in case of default. The Russians did not buy this argument, saying that if the Government of Pakistan does not face any penalty including the freeing of its assets by lenders, then loans will not be extended against 74 percent shareholding of Pakistan. “This means that the Government of Pakistan does not want to execute the project with loans from Russian lenders.” However, Pakistanis told the Russian negotiators that this issue will be referred to the AG’s office for review and they will be informed later on about it.

Both sides also discussed as to which entity will be held responsible in case of delay in the project’s CoD, as the lenders will seek compensation against their loans if the commissioning of the project gets delayed. The Pakistani side kept on maintaining that it would be SPC (Special Purpose Company) that will indemnify the government of Pakistan in case of delay and will be held responsible for delay and compensation. The Russian experts asked as to how a company can indemnify the state in case of COD delay. They also argued since it is the Government of Pakistan that has 74 percent shareholding, it must be held responsible for the delay as the acquisition of land for right of way for the pipeline project falls under the government’s jurisdiction.

Both sides also locked horns over the registration of the SPC with SECP as the Pakistan side asked for details of the directors from Moscow to be included into the SPC Board of Directors, but the Russian side responded by saying that the Pakistan side should get the company registered with the SECP first. The SECP representative said it can provide the provisional registration of SPC. However, the Pakistan side insisted on SPC registration after details of directors from Russia.

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