Pakistan Reader# 183, 24 August 2021
The PSGP project acts as a precursor for the budding Pakistan-Russia bilateral relationsAbigail Miriam Fernandez
Pakistan and Russia are scheduled to hold three-day talks on crucial technical issues regarding the Pakistan Stream Gas Pipeline (PSGP) on 24-26 August 2021. The News International quoted a senior official who said that Pakistan and Russia would discuss the specifications of the PSGP including its diameter, pre-feasibility options and hydraulic specifications, in line with the future demand growth of gas. Additionally, the official stated that both sides would also discuss commercial and legal issues, along the sidelines of the technical talks.
What is the PSGP?
The Pakistan Stream Gas Pipeline (PSGP), formerly known as the North-South Gas Pipeline is the first large-scale economic initiative between Pakistan and Russia since the mid-1970s. The mega infrastructural project is aimed at securing the delivery of 12.3 billion cubic meters (bcm) of natural gas per year from the liquefied natural gas (LNG) terminals in Karachi and Gwadar to Lahore. The pipeline envisages the construction of a 1040-kilometre gas pipeline with a diameter of 42 to 56 from Port Qasim to Kasur, costing USD 2.25 -2.5 billion and is expected to be completed by 2023. Additionally, the joint venture entails Pakistan holding 74 per cent and Russia 26 per cent. Although the PSGP project was originally announced in a joint statement of the Pakistan-Russia Inter-Governmental Commission in November 2014 because of conflicting reasons the signing of the agreement between the two countries has been delayed.
What has been discussed so far?
Previously, both sides have finalised the Heads of Terms (HoTs) broadly covered the corporate, governance, financing and contractual structure of the project. According to the HoTs, Russian would have 26 per cent and Pakistan to have 74 per cent shareholding in the project. The Special Purpose Company (SPC) is to be incorporated in Islamabad and the Russian nominated entity, PAKSTREAM LLC would be having not less than 26 per cent shares, whereas the Pakistani nominated entity, Inter-State Gas Systems (Pvt) Ltd., would have a maximum share up to 74 per cent shares.
What is in it for Pakistan?
In Pakistan, most of the primary energy supply comes from oil and natural gas, while hydropower is the main renewable source of energy as wind and solar shares slowly growing. The PSGP project is hugely significant for both Pakistan and Russia. For Pakistan which is a net importer of energy, the project would help enable a new steady source of natural gas crucial for its economy and transport this gas to the industrialized north. Additionally, it would enable Pakistani industries which are still dependent on the consumption of coal to move towards ecologically sustainable natural gas.
What is in it for Russia?
For Russia, the PSGP project has become an entryway into a range of new economic prospects and geo-strategic opportunities in Pakistan. Additionally, this comes amid the recent warming of ties between Pakistan and Russia as Russian Foreign Minister Sergey Lavrov visited Islamabad for a two-day visit in April 2021 the first by a Russian foreign minister in nine years as well as other delegation visit between the two. Russia interest in Pakistan stems from its strategic location and venture to find new defence and energy markets for which Pakistan is a perfect fit. Additionally, the convergence in mutual thinking regarding Afghanistan is another point of interest.
What are the challenges that lie ahead?
The challenges ahead continue to be the deliberations on HoTs. Additionally, awarding the contract at a fair market price is a challenge as the contract is unlikely to be processed under the regime of Competitive Bidding. Along with this, the negative consequences of the delays in the implementation of this project are another challenge that needs to be looked into. Conversely, Pakistan’s looming gas crisis is another reason why the completion of the Pak-Russia project by 2023 is crucial.
This said, PSGP Project will become an important aspect in Pakistan-Russia relations, where both sides stand to gain. Thus, although the project is hoped to have economic benefits is more strategic in nature.
“PSGP Project ,” The Nation, 23 August 2021
“$3 bn PSGP Project: Pakistan, Russia to hold three-day technical talks on August 24-26,” The News International, 23 August 2021
“Pakistan Stream Gas Pipeline: Russia’s Key to South Asia?,” The Jamestown Foundation, 3 August 2021
“PSGP project,” Business Recorder, 24 July 2021
“New Pakistan Gas Pipeline Proposed,” Pipeline Technology Journal, 23 July 2021
“PSGP project: CCoE censures PD for inordinate delay,” Business Recorder, 3 July 2021
“Gas pipeline: Russia concerned at reports?,” Business Recorder, 12 July 2021
“Make or break talks with Russia on PSGP from July 12,” The News International, 10 July 2021
“Headwinds, policy confusions subverting Russian gas line project,” The News International, 7 July 2021
“Pakistan Country Profile,” International Energy Agency