Russia to revise implementation structure of $2 billion NSGP project

ISLAMABAD: The Russian government with Pakistan’s consent will revise the implementation structure of the North-South Gas Pipeline (NSGP) project, as OAO TMK and its ultimate beneficiary owner (UBO) Dmitry Pumpyansky was on the US sanction watch list.

Pakistan had conveyed its reservations to the Russian government regarding this company and its beneficial owner, and said it could not award this multi-billion dollar project to such a company that could invite sanctions on this project, delaying it further.

“The nominated entity of Russia was hit by US sanctions, where after both sides decided to carry out the project through sanction-free SPV. For this, the Russian side has conceded to propose a revised structure.”

Such entity would be a vulnerable entity to be engaged with for the execution of the Project, which is going to operate in Pakistan for a period of 25 years.

Moreover, the entity has no experience in laying and operation of the pipeline systems. This might have impact on ISGS’ other transnational projects. Thus, the decision was to follow a cautious approach.

According to the documents available with The News, Islamabad has agreed to the suggestion for extending the Intergovernmental Agreement (IGA) by another six months and also suggested to amend the agreement through protocol of amendment, which Pakistan has shared with Russia in July 2019.

At the same time, Pakistan has said that there was need to move forward with implementation of the project while obviating any chances of attracting any sanctions on the project or its shareholder.

This $2 billion 1,100 kilometre gas pipeline project would be laid from Karachi to Lahore (two major cities of Pakistan) with majority financing from Russia.

Meanwhile, the Petroleum Division in a statement said it was a hallmark project of Pakistan’s strategic relations with the Russian Federation and was carefully yet aggressively being pursued by the Petroleum Division despite challenges being faced due to international developments.

Speaking of significant progress on the project, Petroleum Division has obtained route approval for the project from the Ministry of Defence. The Oil and Gas Regulatory Authority (OGRA) has granted construction and operation licence to Inter State Gas Systems (ISGS).

The company has also substantially negotiated the Build, Own, Operation and Transfer (BOOT) agreement with its counterpart Russian entity.

The Russian side has submitted the price proposal which was under active consideration of Price Negotiation Committee constituted by the Economic Coordination Committee (ECC) of the Cabinet.

The inter-governmental agreement enshrines that the project would be implemented through the nominated entities of both sides.

Both sides have agreed to discuss the issue in upcoming Pakistan-Russia working meeting scheduled in December 2019.

It is important to note that Pakistan has no role in proposing an entity or amending the corporate structure, however, the proposed corporate structure has to be sanction-free in accordance with the ECC decision.

Pakistan’s position was clearly communicated to the Russian side in a meeting held in July 2019 that the government does not have a risk appetite in this regard in the wake of prevalent US sanctions regime as well as Financial Action Task Force regulations and, therefore, would like to see a sanction-free corporate structure.