ISLAMABAD: Pakistan and Russia signed here on Sunday an agreement for laying a $2.5 billion pipeline to carry imported liquefied natural gas (LNG) from Karachi to Lahore.

Sidestepping the normal bidding requirements, the agreement was signed as a government-to-government deal. Moscow would provide a loan of $2bn in return for the award of the contract to state-run Russian firm RT Global, an arm of Russia State Corporation.

The Russian company will be responsible for laying the 1,100km pipeline, which will be called North-South Pipeline. It will be capable of carrying 12.4bcm (billion cubic meters) per annum to connect LNG terminals in Karachi with consumption centres near Lahore.

Power plants near Lahore to be connected with terminals in Karachi

The agreement was signed by Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi and Russia’s Energy Minister Alexander Novak. Prime Minister Nawaz Sharif attended the signing ceremony.

The two sides had agreed during a recent meeting between President Vladimir Putin and Prime Minister Sharif in Ufa to award the contract to the Russian firm without bidding against which the Russian government would extend financing.

Details of the financing terms were not made public.

The project indicates the likelihood of Russia providing LNG to Pakistan at a later stage and also Pakistan’s desire to diversify its economic and trade relations.

Russia is the world’s second largest natural gas producer and is looking for new markets after its recent conflict with Ukraine which caused deterioration of its relations with Europe, its major hydrocarbon export market.

Under the commercial agreement, Pakistan will provide 15 per cent equity and the Russian company 85pc. Russia will invest $2bn and the project is expected to be completed by Dec 2017.

The project will be carried out on the build, own, operate and transfer basis. It would be run by the Russian firm for 25 years to recover investment with profit, before handing it over to a Pakistani entity, informed sources said. The Pakistan government will provide a sovereign guarantee for the loan.

An official statement quoted the prime minister as saying at the signing ceremony that Pakistan wanted to develop a multi-dimensional relationship with Russia in various fields — trade, defence, energy, infrastructure and culture.

Pakistan had signed a similar government-to-government agreement with China for laying a $2.5 billion pipeline from Gwadar Port to Nawabshah in Sindh.

Economic and trade relations between Islamabad and Moscow have remained severely affected for about five decades because of cold war tensions, even though Pakistan’s two major ventures — the Pakistan Steel Mills and largest hydrocarbon producer Oil and Gas Development Company — came into being with financial and technical support of the erstwhile Soviet Union in the 1960s.

The two sides have been cosying up over a couple of years and have signed a few memoranda of understanding in recent weeks enabling Russian energy firms to enter Pakistan’s oil and gas exploration and production sectors through government-to-government contracts.

A Russian delegation, led by Energy Minister Alexander Novak, arrived in Islamabad on Thursday night for signing the agreement.

It held a meeting with Petroleum Minister Khaqan Abbasi and Prime Minister’s Adviser on Foreign Affairs and National Security Sartaj Aziz.

The Russian firm is expected to begin work on the project in about four months and complete it by the end of December 2017. The Second phase of the project involving the setting up of compression stations is expected to be completed by May-June 2019.

“Pakistan is expecting President Putin to pay a landmark visit to Islamabad for performing the ground-breaking of North-South Pipeline early next year,” the official statement said.

Published in Dawn, October 17th, 2015

On a mobile phone? Get the Dawn Mobile App: Apple Store | Google Play