Economic Co-ordination Committee (ECC) of the Cabinet has linked final clearance of North-South Gas Pipeline Project to be constructed by Russia with the approval of Law Ministry, well-informed sources told Business Recorder.
Official documents available with Business Recorder reveal that the Ministry of Petroleum and Natural Resources informed the ECC on April 11, 2016 that the Government of Pakistan and the Russian Federation had entered into a Government-to-Government Agreement on the cooperation for the development of North-South Gas Pipeline Project on October 16, 2015 at Islamabad. As per the G to G agreement, the Pakistani side had nominated Inter State Gas System (Pvt) Ltd and its affiliates while the Russian side had nominated RT-Global Resource and its affiliates for execution of the project. The agreement did not envisage any specific contract model to be followed by the nominated entities for project execution. The Russian side had expressed its preference to use the Build Own Operate and Transfer (BOOT) model on a 25-year term. Based on an analysis, MP&NR agreed with the contract model proposed by the Russian side.
Ministry of Petroleum and Natural Resources further revealed that in view of sanctions imposed on RT Global Resources and its potential impact on the project, legal opinion was sought which provided that the Russian- nominated entity under the G to G agreement needed to be an entity that was not a sanctioned entity. The structure proposed by the Russian side would be a workable structure if it does not include a "sanctioned entity". It was stated that the respective Ministers from both sides held a series of meetings in Moscow to discuss matters related to the implementation of the Project and sanctions. The Russian side proposed corporate structure whereby the Project would be executed through a Project Special Purpose Vehicle (Pakistan) to be incorporated under the laws of Pakistan.
Petroleum Ministry was of the view that that optimum utilisation of the gas pipeline was key to the economic model viability. For this, the Russian side has sought 1.2 Bcfd gas volume oil-take guarantee by GOP. Given the energy shortfall in the country and upcoming power projects being implemented by GoP, the MP&NR assured the gas volume off-take in view if the following anticipated additional demand/consumption on the SNGPL network: (i) APTMA 400 MMCFD;(ii) CNG 400 MMCFD;(iii) fertiliser 200 MMCFD; (iv) other-industries 200 MMCFD;(v) domestic 100 MMCFD; and (vi) power sector 600 MMCFD.
Petroleum Ministry explained that that in Phase-I, upto 600 MMCFD of RLNG would be transported through Gwadar-Nawabshah Gas Pipeline Project which would be connected with the North-South Gas Pipeline Project at Nawabshah for transporting the same gas volume till the SNGPL network near Kasur (gas supply-demand projection). The target completion of phase-I was December 2017. The implementation of the project involved construction of the pipeline in three segments namely: Karachi-Nawabshah (250 KM). Nawabshah-Pakpattan (600 kms) and Pakpattan-Kasur (250 kms).
The Russian side was to proposed transportation tariff for the three segments for Pakistan''s consideration and be responsible for the entire financing construction and operation of the project against GoP sovereign guarantee, while Pakistan would be responsible for the provision of security and right of way. Under phase-II of the project with additional compression provision, the gas carrying capacity would be enhanced upto 1.500 MMCFD to transport additional RLNG or Iranian gas volumes. The target completion of phase-II was December 2018. The commercial aspects of the proposal of the Russian nominated entity would need thorough evaluation and negotiation being a capital intensive project of national importance requiring a sovereign guarantee.
The documents further disclose that Ministry of Petroleum and Natural Resources proposed to constitute a Price Negotiation Committee (PNC) to negotiate according to the Terms of Reference (ToR) and placed this before the ECC along with the price and key commercial aspects of the contract with the Russian nominated entity. The PNC would consist of the following (i) Chairman, Board of Investment, Chairman; (ii) Secretary, MP &NR, Member;(iii) Secretary Finance or his nominee, Member;(iv) Managing Director SNGPL, Member; and (v) Managing Director ISGSL, Secretary.
The Ministry of Petroleum & Natural Resources also submitted the following recommendation for consideration of ECC of the Cabinet: (i) BOOT contract model for 25 years to be used for the project where after the asset will be transferred to the Pakistan nominated entity;(ii) project may be implemented by the project Special Purpose Vehicle (SPV) (Pakistan) nominated by the Russian Federation as long as it is not a sanctioned entity; (iii) upto 600 MMCFD RLNG off take from Gwadar LNG terminal be allocated for transport through the project; (iv) Government of Pakistan to guarantee 1.2 Bcfd gas volume off take against sovereign guarantee;(v) constitution of a Price Negotiation Committee to negotiate the price and other key commercial aspects of the contract; and (vi) GHPL to fund the consultancy fee, ROW and security cost of the project.
After detailed discussion on the summary submitted by the Petroleum Ministry, the ECC took the following decisions; (i) Ministry of Law and Justice will furnish legal opinion on whether the proposed SPV was covered under the present Government to Government Agreement or otherwise, within one week time; (ii) Inter State Gas System (Pvt) Limited to provide guarantee to be counter guaranteed by the Government of Pakistan if required; and (iii) approved Price Negotiation Committee ie Secretary, MP&NR- Chairman, Secretary, Finance or his nominee-Member, Secretary, Law & Justice Division-Member or his nominee, Secretary, Board of Investment- Member, Managing Director, SNGPL Member and Managing Director ISGSL -Member/Secretary.
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