Russian team will visit Pakistan next week to start talks on commercial contract of $2b LNG pipeline

Pakistan and Russia are set to start negotiations on a commercial contract for laying a $2-billion liquefied natural gas (LNG) pipeline next week following the go-ahead given by the Ministry of Law for the project despite US sanctions against the Russian firm selected to execute the scheme.

A Russian team will reach Islamabad next week to negotiate the commercial deal. Earlier, talks on the project reached a deadlock after the US imposed sanctions on the Russian company – RT Global – working on the project.

The pipeline will be laid on the build, operate and transfer model. The Russian company will hand over its control to Pakistan after 25 years.

Under an agreement, Pakistan will provide 15% of equity while the remaining 85% financing will be contributed by Russia. First phase of the project is expected to conclude by December 2017.

Pakistan has also awarded a contract to a Chinese firm for laying another LNG pipeline on the same model from Gwadar. It has got a lower cost estimate from the Chinese company, China Petroleum Pipeline Bureau, which agreed to revise the pipeline-building cost to $1.3 billion from the earlier $1.5 billion.

Separately, Pakistan’s gas companies are spending around $1.1 billion to enhance the capacity of their pipeline networks in order to transport 1.2 billion cubic feet of LNG per day. This cost amounts to $34 per inch metre but the cost of the deal negotiated with China is $32 per inch metre.

Russian deal

The Russian government signed an agreement with Pakistan in October 2015 for building the $2-billion North-South pipeline between Karachi and Lahore to transport the imported LNG.

Russian President Vladimir Putin was due to arrive in Pakistan to perform the ground-breaking of the project, but the planned commercial contract between RT Global and Interstate Gas Systems was delayed due to the US sanctions.

Moscow has agreed to lend Islamabad $2 billion for the project. In return, Pakistan will award the contract of laying the pipeline to RT Global Resources without inviting any bids.

China cuts cost estimate by another $200 million for Gwadar LNG pipeline

The Ministry of Petroleum and Natural Resources had tabled a proposed plan for implementing the LNG pipeline project in a meeting of the Economic Coordination Committee (ECC) in April this year. However before taking a decision, the ECC referred the matter to the Law Division for its opinion on whether the US sanctions could cause problems for the project.

The Russian company will lay a 1,100km-long pipeline with a capacity to carry 12.4 billion cubic metres per annum and connect the LNG infrastructure in Karachi and Lahore.

Russia is the second-largest producer of natural gas in the world and is seeking to diversify its export markets after a spat over the Ukrainian crisis with the European Union, its main gas buyer. It has also offered Pakistan export of LNG.