Pakistan, Russia sign Heads of Terms for $2.5bn PSGP project

ISLAMABAD: Pakistan and Russia on Thursday signed Heads of Terms to construct the $2.5-billion Pakistan-Stream Gas Pipeline (PSGP) project of 1,040 kilometers from Port Qasim to Kasur, to be completed by 2023.

The agreement of strategic importance was signed by Secretary Petroleum, Dr Arshad Mehmood and AA Tolparov Deputy Director of Department of Foreign Economic Cooperation and Fuel Market Development of Russia.

Minister for Energy Hammad Azhar and representatives of Energy Ministry of Russia witnessed the Heads of Terms signing ceremony. SAPM on Power and Petroleum, Tabish Gauhar, who was reportedly opposing the project, was not seen in the picture.

The sources said there were many ups and downs witnessed during the two-day talks due to differences on different issues. However, the pact was finalised after involvement of some key stakeholders, who wanted a balance in international strategic relations.

The infrastructure of the 42-to-56 diameter pipeline, costing $2.25 -2.5 billion, will ensure enhanced energy security of Pakistan. The project will secure sustainable gas supply infrastructure for the next 40 years. This will be the most essential conduit between installation of new LNG terminals and industrial growth of Pakistan. Oil and Gas Regulatory Authority (Ogra) will determine the tariff of gas pipelines. The raw material of pipeline will come from Russia whereas local companies will lay the pipeline.

Pakistan Stream Gas Pipeline Project, formerly known as North South Gas Pipeline, was announced in a joint statement of Pakistan-Russia Inter Governmental Commission on November 26-28, 2014.

Economic Coordination Committee (ECC) gave, in principle, its approval on January 10, 2015. Later, the Cabinet Committee on Energy (CCoE) authorized Petroleum Ministry to engage with Russian counterparts on October 14, 2015. Prime Minister accorded approval to the draft of the IGA through summary on July 8, 2015 and IGA was signed in Islamabad by Petroleum Ministers of the two countries on October 16, 2015.

On April 11, 2016, ECC gave its decision on project model and constitution of PNE. However, the ECCalso a pproved financing model of 1.2 Bcfd capacity RLNG-III pipeline by Suis on January 5, 2018.

According to the Petroleum Division, between 2015 to 2020, timelines to finalize the contractual agreement were extended six times. Meanwhile, the ECC decided to fund the project through GIDC on February 10, 2020. This was followed by the Supreme Court decision on the GIDC on August 13, 2020.

The federal cabinet approved the Protocol to IGA on March 9, 2021. Amended IGA has been signed on May 28, 2021 whereas the original IGA was signed on October 16, 2015. At present, the structure of Russian consortium has been finalized being seventh version in the last five years in which Russian nominated entity has been identified as FSUE (Russian Ministry of Energy), ETK (Execution specialist) and PAO IMK (Production specialist) - with a company namely, PAKSTREAM LLC.

The sources said broad understanding has been achieved in the signed IGA equity share, role in decision making on selection of EPC contractor, pricing, FEED, risk sharing arrangements, facilitations and concessions/exemptions, etc. According to the IGA, Pakistan-nominated entity, Inter State Gas System, will undertake the project through GIDC proceeds of (74%) and external equity (26%).

The amended IGA paved the way for signing of shareholders agreement, draft of which has been shared with Russia on December 23, 2020. In return, the Russian side shared the "Heads of Terms on March 17, 2021. Both parties worked on critical aspects of SHA including shareholding structure of SPC, Corporate Governance model, project implementation arrangements, securities/guarantees, tariff, facilitation, and risk mitigation.

The key challenges included finalization of SHA by July 27, 2021 for which the Petroleum Division hired a professional legal team. A technical team comprising officials notified and negotiation strategy was finalized through deliberations on "Heads of Terms" and SHA, to safeguard commercial and economic interests of Pakistan.

Copyright Business Recorder, 2021