Pakistan, Russia sign revised gas pipeline deal

Category: General , Announcement

Pakistan and Russia have signed a revised deal for laying the Pakistan Stream Gas Pipeline, formerly known as the North South Gas Pipeline, with major shareholding for Islamabad.  The two sides agreed to rename the North South Gas Pipeline as the Pakistan Stream Gas Pipeline due to major shareholding for Pakistan.

They also agreed, in principle, to execute the project through a special purpose company, which would be incorporated in Pakistan.  Though Russia will have minority shareholding in the gas pipeline project, Pakistan will ensure maximum utilisation of Russian material, equipment and resources with the aim of enhancing technical and operational capacity of Pakistani companies and human resources through mutual working and training.  In the revised project structure, Pakistan will hold 74% shares whereas Russia will have 26% stake. Earlier, Russia had to build the pipeline on the build, own, operate and transfer (BOOT) model and transfer its ownership to Pakistan after 25 years.  Russia had also to make 85% of the required expenditure on the project whereas Pakistan had to spend 15% of the capital.  Now, in the revised model, Pakistan has money on account of gas infrastructure development cess (GIDC) and, therefore, it would contribute 74% of the capital and Russia will make 26% of the expenditure. However, Russia will provide all importable material for the pipeline.  Pakistan will also invest the major portion of financing.  Though Pakistan will have majority shareholding in the special purpose company, Russia will take management control of the project.

Gas pipeline control

In another development Pakistan has agreed to give management control of Pakistan Stream Gas Pipeline (PSGP) project to Russia through a special purpose company.  The project will mark the emergence of Russian footprint in Pakistan after decades, since the former’s key role in setting up Oil and Gas Development Company (OGDC) and Pakistan Steel Mills (PSM).  The designed capacity of the pipeline project has been increased to 1.6 billion cubic feet per day (bcfd) with a 56-inch diameter pipeline.

Pakistan had conducted an analysis of different diameters pipeline and the government came to the conclusion that a 56-inch diameter pipeline would be the most economically feasible that would enable transport of 1.6 bcfd of gas. Later, the capacity will be extended to 2 bcfd.  Officials said Russia-nominated company ETK had experience of building 4,000km pipelines with big diameters.  However, Pakistani companies like Sui Northern Gas Pipelines Limited (SNGPL) did not have the required experience. The Petroleum Division had also asked SNGPL whether it had the experience and capability of building a 56-inch diameter pipeline.

Transporting LNG

Two private LNG companies were setting up two additional LNG terminals in Karachi. These companies require a pipeline to transport imported gas to Punjab.  Pakistan’s dependence on LNG is increasing as it is helping to meet the growing demand for gas. Local gas production is falling by 6.5% annually. Sui Southern Gas Company (SSGC) is going to use LNG for the first time to bridge the shortfall in winter season.

LNG is considered an interim arrangement as different countries import 5-6% gas. However, in Pakistan the scenario has changed as the country is meeting 25% of its demand through LNG.  A new gas pipeline from Karachi to Lahore would not only help attract investment in setting up LNG terminals but it would also help meet rising demand for gas.

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