Pakistan, Russia sign terms of accord for 1,100-km gas pipeline from Karachi to Lahore

Pakistan and Russia have signed an agreement for the construction of about 1,100-km gas pipeline from Port Qasim in Karachi to Lahore at an estimated cost of USD 2.5-3 billion by the end of 2023, according to a media report on Friday.

The Heads of Terms (HoTs) of shareholders’ agreement was signed on Thursday after four days of talks, the Dawn News reported. The two sides also signed minutes of the third meeting of the Russia-Pakistan Joint Technical Committee (JTC) for implementation of the Pakstream Gas Pipeline Project – commonly known as North-South Gas project.

The two sides agreed over 74:26 per cent shareholding in the special purpose vehicle (SPV) for the project. This envisages both ‘put option’ and ‘call option’ to Russian side which means its entities can move out of the project if it is not found feasible or increase its shareholding to 49 per cent if it is able to provide attractive financing arrangements acceptable to Pakistan. In any case, Pakistani entities will maintain majority shareholding.

The Russian side will arrange funding for foreign exchange components through suppliers’ credit or typical project financing to cover imported items like steel, consultancies, pipelines and related products and materials not available in Pakistan. The concession agreement for the pipeline will remain effective for 25-30 years. The pipeline size was agreed at 56-inch diameter to cater for next 30-40 years of energy needs in the country that will ensure 700-800 million cubic feet per day (mmfcd) of free gas flow which can go up to 2,000mmcfd with compressors.

The next steps will be the signing shareholders’ agreement, financial agreement, gas transportation agreement and lenders agreement during which time the Russian side will complete the front end engineering design (FEED) and the Pakistani side will arrange dollar financing of local currency component against Rs321bn worth of Gas Infrastructure Development Cess.

The two sides committed to expeditiously implement the project to meet the emerging energy security scenario of Pakistan to ensure investment commitments by coming LNG terminals, the Pakistani daily reported.

At the signing ceremony in Islamabad, Pakistani side was led by Petroleum Division Secretary Arshad Mahmood while Deputy Director of Department of Foreign Economic Cooperation and Fuel Markets Development of Russian Ministry of Energy Alexander Tolparov led the visiting team.