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Make or break talks with Russia on PSGP from July 12 - Inside Financial Markets

Make or break talks with Russia on PSGP from July 12

In a new development, a 12-member Russian delegation, headed by A A Tolparov, Deputy Director of Department of Foreign Economic Cooperation and Fuel Markets Development, is coming on July 12 to Pakistan for having ‘make or break’ four-day talks on the country’s most strategic project of Pakistan Stream Gas Pipeline (PSGP), which is also known as the North South Gas Pipeline.

Both the countries inked on May 28 an amended Inter Governmental Agreement on PSGP in Moscow with the resolve to sign the shareholder agreement and other commercial accords within 60 days. The talks would focus on shareholders’ agreement and heads of terms. Both the countries would also decide about the diameter of the pipeline.

Pakistan’s powerful circles want the Russian Federation to develop its stakes in Pakistan’s economy through building the PSGP. Both the countries have already developed their relations to new heights in terms of cooperation in the defence sector. The Russian Federation has been on board with Pakistan since 2015 on the project. The project witnessed many upheavals, mainly because of demands of Pakistan, sometimes on companies’ structure for the project and sometimes on the financing issues.

Dr Arshad Mehmood, Secretary Petroleum, when contacted, confirmed that talks with Russia on the project were to start from Monday (July 12, 2021). He said: “We want Russian participation in the project but we will protect the country’s interests in the talks.” He also said that authorities in Pakistan want the maximum benefit to local companies from spending on the project. Mehmood hoped that talks with Russia would be successful but in case of any failure, authorities are working on a contingency plan also to develop an alternate pipeline.

According to the sources, under the earlier Inter-Governmental Agreement, Russia was to erect the whole project with its 100 percent financing. Then the Government of Pakistan took a new decision with maximum investment from its side on the project after the Supreme Court verdict on GIDC (Gas Infrastructure Development Cess). Now under the amended IGA, Pakistan will be having 74pc shares and Russia 26 percent in the project.

Russia has agreed to participate with 26 percent financing, showing how serious Moscow is to build its stakes in the Pakistan economy. Russia in the past built the Pakistan Steel Mills and OGDCL too.

After the decision of June 24, 2021 by the Cabinet Committee on Energy (CCOE), the Petroleum Division has started finalizing the alternate pipeline project plan, observing that PSGP will be further delayed, which has already missed the deadline given by the Supreme Court.

Tabish Gauhar, SAPM on Power and Petroleum, have already spoken his mind with The News and Geo in favour of an alternate pipeline in place of PSGP, arguing Russian conditions as a whole are very hard and in case talks with Russia fail, then both the gas companies — Sui Southern and Sui Northern will build the pipeline with the name of LNG-III pipeline.

Tabish is of the view that Pakistan needs the new pipeline from Karachi to Lahore in 2023 to cater to the LNG demands in Punjab and Northern Areas and both the companies are able to lay down the pipeline with 42 inches diameter with less cost than the PSGP cost.

Tabish also says that the government has plan A under which PSGP will be prioritized but if talks fail, then Pakistan under plan-B will not wait more and go for execution of an alternate pipeline. He also argued saying that Pakistan cannot extend any kind of sovereign guarantee to ensure the profits of 26 percent shares to the Russian side. In addition, sources say that Pakistan officials have also made up their mind not to even give the O&M contract to the Russian consortium.

The Russian Federation is reported to have shown concerns with the ambassador of Pakistan to Russia over media reports about the Petroleum Division’s working on the alternate pipeline project under the consortium of Sui Southern, Sui Northern and PAPCO – a company of PARCO. Pakistan’s ambassador, who is the signatory of amended IGA on behalf of the Government of Pakistan, sent a letter to the Foreign Office about the increasing concerns of the Russian Federation.

In an interaction with the ambassador, Russian authorities are reported to have said that Pakistan is a sovereign country and can build pipelines with the help of its own companies’ consortium and posed a question then why Pakistan has signed the amended IGA on May 28. The Foreign Office took the letter of its ambassador posted in Moscow very seriously and sent it to the Petroleum Division. The top sources say the Russian delegation is now coming for talks with the Make and Break mind. Pakistan’s ‘powerful circles’ want to make the pipeline transaction with Russia successful.

Syed Zaki Hussain

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Inside Financial Markets was a joint publication of Pakistan Stock Exchange (PSX)and Society of Technical Analysts Pakistan (STAP)