ISLAMABAD: Pakistan and Russia on Friday signed an inter-governmental agreement for the construction of a gas pipeline from Lahore to Karachi, Radio Pakistan reported.

Russia will invest $2 billion in the project, the first phase of which is expected to conclude by December 2017.

The 1,100 kilometre pipeline with a capacity of 12.4 billion cubic metre per annum will connect Karachi's liquefied natural gas (LNG) terminals with those in Lahore.

The agreement was jointly signed by Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi and Russian Energy Minister Alexander Novak in a ceremony attended by Prime Minister Nawaz Sharif.

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The period of construction is 42 months and energt project will be implemented in three stages, Russia’s TASS news agency said in a report.

On the first stage, by the second quarter of 2018, the gas pipeline will be built.On the second stage, by the second quarter of 2019, part of compressor stations will be completed.

On the third stage, by the second quarter of 2020, all compressor stations will be commissioned bringing the pipeline to its full capacity, which is 12.4 billion cubic meters a year.

The construction of the pipeline will provide orders for Russian industrial enterprises and will contribute to an increase in non-oil exports. The project will open up a new market for Russian companies.

The project will be implemented in compliance with BOOT model (Build Own Operate Transfer). The built pipeline will be owned and operated by the project company for 25 years. During this period payments for gas deliveries will help the company return the investments and make profit. After that the pipeline will be handed over to the government of Pakistan.

Currently, RT-Global Resources is conducting surveys and engineering work along the pipeline route.According to Andrei Korobov, general director of RT-Global Resources, the project’s implementation will imply maximum involvement of Russian producers and contractors. In particular, Rostec considers attracting the United Engine Corporation as a supplier of equipment for compressor stations of the future pipeline, he said.

Pakistan’s state gas supplying company ISGAL acts as a partner customer in the project and will pay gas transportation services. In its turn, the government of Pakistan will issue a sovereign guarantee for project financing.

The Russian side is considering possibilities to attract loans from Russian and Chinese development banks with the support of export credit agencies.

RT-Global Resources will create a consortium uniting Russian and foreign investors including Chinese and Pakistani ones as well as potential contractors," the corporation said in the statement.

Prime Minister Nawaz Sharif and Russian President Vladimir Putin while meeting on the sidelines of the Shanghai Cooperation Organisation summit in Ufa earlier this year discussed progress on the North-South gas pipeline agreement and had decided to expedite progress on the project.

Nawaz had also remarked that Pakistan wished to develop a multi-dimensional relationship with Russia in the fields of trade, defence, energy, infrastructure, culture and other spheres.

In August, Pakistan and Russia signed a landmark defence deal for the sale of four Mi-35 ‘Hind E’ attack helicopters to Pakistan and are currently in talks about the delivery of Sukhoi Su-35 fighter jets.

Also read: Pak-Russia talks on delivery of Su-35, Mi-35s underway: Russian Deputy FM