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Pakistan, Russia Ink Agreement on PakStream Gas Pipeline

by Newsweek Pakistan

Pakistan and Russia officials sign ‘Head of Terms’ for PakStream Gas Pipeline project

Deal envisages 74 percent shareholding for Islamabad and 26 percent for Moscow for the 56-inch pipeline connecting Port Qasim to Lahore

Pakistan and Russia on Thursday completed negotiations on the construction of a 1,100km gas pipeline connecting Karachi’s Port Qasim to Lahore and inked an agreement regarding its terms.

“After lengthy deliberations, Government of Pakistan and Russia have agreed upon and signed ‘Head of Terms’ for construction of PakStream Gas Pipeline,” announced Energy Minister Hammad Azhar in a posting on Twitter. “Shareholding and corporate structure finalized. The project has been suffering from delays since 2015 but effective progress made today,” he added.

A 12-member Russian delegation arrived in Islamabad on Monday for talks on the pipeline, with Moscow’s Pakstream Limited negotiating with Pakistan’s Inter-State Gas System on the terms of the deal.

The pipeline project, estimated to cost $2.5-3 billion and scheduled for completion by the end of 2023, would comprise 74 percent shareholding of Pakistan and 26 percent for Russia. The Russian side also has the option to abandon the project if it feels it is not feasible; or expand its shareholding to 49 percent if it can provide financing arrangements acceptable to Pakistan.

According to the agreement, which would remain in effect for 25-30 years, Russia would arrange financing for the project’s foreign exchange component through suppliers’ credit or similar measures to cover imported items like steel, consultants, pipelines and related products and materials not available in Pakistan. There is no throughput guarantee—the amount of gas a customer is required to transport annually—but tariff payments and returns to Russian entities would be ensured through a security package and standby letters of credit in line with those already available to all international investors.

The agreement also details the pipeline specifications, including a diameter of 56 inches that would be able to provide 700-800 million cubic feet per day of gas flow, with potential of a boosting this to 2,000mmcfd with compressors.

According to the terms, Pakistan’s Sui Gas companies would be responsible for all post-construction operations and maintenance.

According to officials, the two sides must still ink a shareholders’ agreement; a financial agreement; gas transportation agreement; and lenders’ agreement. Russia must also complete the front end engineering design, while Pakistan needs to arrange financing.

The intergovernmental agreement of the PakStream project was signed in 2015 but has faced numerous delays, partially linked to U.S. sanctions. An amended agreement, reflecting the utilization of Gas Infrastructure Development Cess, was signed in May to commence construction work on project.

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