Four-day talks on PSGP: Pakistan will seek loan from Russia to finance project

ISLAMABAD: Pakistan and the Russian Federation are scheduled to hold four-day crucial talks here from today (Monday) that will last till October 29 with an aim to finalize the shareholdings agreement for most strategic project of Pakistan Stream Gas Pipeline valued at $2.5-3 billion, shows the official document pertaining to the agenda of the talks on pipeline project.

Under the amended IGA, Pakistan will be having 74 percent shareholding and Russia 26 percent. Once the shareholding agreement is finalized and signed, then a pipeline of 56 inches diameter, having length of 1,040 kilometers, will be laid down from Karachi to Kasur (Punjab), which may have the capacity to carry 2.5-3 bcfd gas. Two LNG terminals, one by Energas and other by Tabeer, will be constructed by 2023-24. The PSGP will also transport the LNG to be re-gasified from the said LNG terminals. Under the new scenario, the government has also decided to use the Pakistan Stream Gas Pipeline to have an intake of 1.35 bcfd gas to be imported from Tajikistan through the TAPI pipeline and to this effect the government has included the required provision in the PSGP project.

Secretary petroleum, when contacted, confirmed that four-day talks on the Pakistan Stream Gas Pipeline project for finalizing the shareholding and facilitation agreements will be initiated from today (Monday).

However, as per the official document, the Russian delegation, headed by Vladimir Shcherbatvkh, Chief Executive Officer of Russian Nominated Entity (RNE) PAKSTREAM LLC, will arrive today (Monday) in the morning and usher in the important parleys to finalize the shareholding and facilitation agreements. In the talks, Pakistan Nominated Entity (PNE), the Inter State Gas System, headed by Managing Director Syed Zakria Ali Shah, would take part. Secretary Petroleum Dr Arshad Mehmood would lead Pakistan’s side.

However, top sources said the government, which has accumulated Rs325 billion from the gas consumers under the head of GIDC (Gas Infrastructure Development Cess), does not want to spend the whole money on the project as it has reportedly consumed it for budget deficit financing. Now the PTI government wants debt from the Russian EXIM bank and other financial institutions to finance the project. The Finance Division has said that it will provide Rs60-90 billion at the maximum in three years for the project, which means Rs20-30 billion every year. Pakistani authorities cannot afford the outflow of $1.5-2 billion from the reserves in one go, which is why it wants to borrow the loan from Russian banks to cater to the needs of foreign component spending in the project, which will be used to purchase pipeline and compressors. And to this effect, Pakistan intends to seek debt during talks with Russian financial institutions for the project at an international Libor rate of 1.5-2 percent with tenure of 20 years for repayment of the debt with mark-up, ensuring slow and staggered outflow of dollars from foreign reserves. This means the project that was earlier based on GIDC funding has been converted to debt based financing mode and the masses who had earlier paid for the pipeline in the shape of GIDC will again pay in the shape of pipeline transportation tariff the debt and mark- up.

In earlier meetings, Pakistan had also asked Russia to jack up its shareholding maximum up to 49 percent from 26 percent, showing that Islamabad does not have the required amount to finance its own shareholding of 74 percent. This develops a strong impression that the government that collected over Rs325 billion has utilized the GIDC amount in budget financing. Besides, the government has also decided to extend sovereign guarantee against the debt financing to lenders to be arranged by Russia. “And Russia had also been asked to work out its strategy with options of arranging supplier credits, debt financing and increase in its shareholding by up to 49 percent.”

In the four-day talks, both sides will follow and adhere to the principles agreed in the Inter-Governmental Agreement (IGA) as amended through Protocol dated 28th May, 2021 and the Heads of Terms of the Shareholders Agreement signed by the parties on 15th July, 2021. Under the earlier Inter-Governmental Agreement, Russia was to erect the whole project with its 100 percent financing. Then the Government of Pakistan took a new decision with maximum investment from its side into the project after the Supreme Court verdict on GIDC (Gas Infrastructure Development Cess). Now under the amended IGA, Pakistan will be having 74pc shares and Russia 26 percent in the project.

Russia has agreed to participate with 26 percent financing, showing how serious Moscow is about building its stakes in the Pakistan economy. Russia in the past built the Pakistan Steel Mills and OGDCL too.