Start of Pak-Russia talks on sharing and facilitation agreements

ISLAMABAD: Crucial three-day talks between Pakistan and Russia on shareholding and facilitation agreements for Pakistan’s flagship $3 billion Stream Gas Pipeline project have begun in hopes the deal will be approved before on February 15, which will be signed during Prime Minister Imran Khan’s upcoming visit to Moscow. The pipeline will transport gas from Karachi to Kasur (Punjab) under an amended IGA (Intergovernmental Agreement) with 74% participation from Pakistan and 26% from Russia.

Pakistan and Russia announced earlier on November 26 during the visit of Federal Economic Affairs Division Minister Omer Ayub Khan to Moscow that the two parties will sign a shareholding agreement on the Pakistan Stream gas pipeline project by on February 15, 2022. However, on the first day of the talks, when the business teams began discussing and finalizing the draft shareholding and facilitation agreements, CLM firm attorney hired by Inter State Gas System (ISGS ) attempted to trump the talks by raising unnecessary objections to the land acquisition. In all of these high-level and technical meetings, it’s the business experts who agree or disagree on the terms, while the law firms are required to draft the agreed-upon clauses of the agreements, an expert told The News. senior official who participated in the talks.

The two sides discussed issues regarding sovereign guarantees and land acquisition, including the pipeline right-of-way. The Russian side pointed out that if land acquisition for the pipeline right-of-way is delayed, it will not only hamper borrowing from Russian commercial banks and financial institutions, but also delay the project. The Russians have made it clear that it is the responsibility of the Pakistani government to acquire the land and secure the right of way for the project in time. Again, in place of the Inter State Gas System sales team, CLM’s attorney intervened, saying that the special purpose company formed to complete and manage the project will be granted the right of way on time and that there was no need for a general clause. The Russian team insisted that a general right of way clause is imperative, as the issue may become more complicated if not resolved in a timely manner. The official sources said that the Pakistani team’s contribution to the talks was not up to par, which raised some eyebrows over the incompetence of the ISGS team.

Similarly, during the talks, the Pakistani side came up with a strange version saying that in case of objection from the Ministry of Defense, the land acquisition could be delayed although the Ministry of Defense has already issued a certificate of no objection. “It shows how ill-prepared the Pakistani side is for the talks,” the official said.

Experts are of the opinion that it is urgent for both parties to determine whether this project will be feasible in terms of transmission tariffs. The government of Pakistan should at least speed up the process of determining the gross tariff to find out if the $3 billion project is feasible. Islamabad needs less than 30% equity and 70% loans for its 74% stake to provide almost $2 billion and Russia needs to provide $700-800 million investment according to its 26 % shares.

Pakistan with less than 30% equity will provide land and a number of Rs 60 to 90 billion in three years at most. “This means that Pakistan will arrange maximum loans, maybe around $2 billion from Russian lenders, which will increase the cost of the project and the total cost will be reflected in the transport tariff which can fluctuate around 1 .5 to 2 dollars per MMBTU,” said the experts.

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