Frustration over Changing Project Structures: Moscow’s frustration with Islamabad stems from the repeated changes in the structure of the Pakistan Stream Gas Pipeline project. These structural shifts have created uncertainty and hindered progress.
Complex Stakeholder Dynamics: The pipeline project’s protracted delay can be attributed to the involvement of multiple stakeholders, including Russian businessmen in Pakistan and the differing preferences of shareholders in Pakistani state gas utilities.
Persistent Payment Issues: The delayed payment of gas infrastructure cess (GIDC) by influential sectors, such as textiles and fertilizers, despite substantial subsidies, remains a significant hurdle. Legal battles and court orders have failed to resolve this issue, impacting the project’s financing.
Moscow’s patience has worn thin with Islamabad over the Pakistan Stream Gas Pipeline, a project plagued by changing structures and stagnant progress, all while the specter of U.S. sanctions on Russian entities looms large.
Originally conceived to address the gas shortage in Punjab province by constructing a liquefied natural gas (LNG) pipeline from Karachi to Lahore, this venture has faced a series of embarrassing setbacks. During recent talks in Moscow, Pakistani representatives found themselves in an uncomfortable position as the Russian side’s frustration reached a breaking point, leading them to dismiss discussions on the gas pipeline altogether.
The heart of the issue lies in repeated changes to the project’s structure. Initially, Russia had nominated RT Global to oversee the endeavor, while Pakistan favored the state-owned Inter State Gas Systems (ISGS). However, the imposition of U.S. sanctions on RT Global in early 2016 sent the project into turmoil.
Since then, Pakistan and Russia have undergone nearly half a dozen structural revisions, each attempting to navigate the complex challenges. In July 2021, a consensus was reached, with Pakistani state-owned gas companies holding 74% of the shares, and Russian firms holding the remaining 26%. Although an amended Intergovernmental Agreement (IGA) was signed, paving the way for construction work during the PTI’s tenure, progress on a commercial deal remains elusive.
With a change in government, Pakistan’s PML-N-led coalition proposed yet another structural overhaul, suggesting the project be completed on a build-operate-transfer (BOT) basis – an initial mode considered at the project’s inception a decade ago. This model would see Russians making the entire investment, with project ownership transferring to Pakistan after 25 years.
Regrettably, these proposals only fueled Russian frustration further, leading to a recent impasse in Moscow.
Several factors have contributed to the pipeline’s protracted delay. The involvement of multiple stakeholders, including businessmen linked to Russian companies in Pakistan, has complicated matters. Additionally, shareholders of Pakistani state gas utilities have advocated for local companies to execute the project, foreseeing substantial returns on investment.
Notably, textile and fertilizer industry leaders share blame for the project’s slow progress. Despite receiving substantial subsidies, they have yet to pay over Rs500 billion in gas infrastructure cess (GIDC). Even after a Supreme Court mandate to pay the GIDC in installments for the project’s completion, these sectors have managed to secure stay orders from lower courts.
The Pakistan-Russia gas pipeline stands as a symbol of good intentions marred by complexity and impasses. To find a way forward, all parties involved must resolve their differences and rekindle the hope of delivering much-needed energy solutions to the people of Punjab.