Russia revising structure after US sanctions on TMK

RECORDER REPORT

ISLAMABAD: Russia is revising its structure to implement the North-South Gas Pipeline Project, worth $ 2 billion, following the US sanctions imposed on TMK firm.

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

Speaking of significant progress on the project, the Petroleum Division has obtained route approval for the project from the Ministry of Defense. The Oil and Gas Regulatory Authority (Ogra) has granted construction and operation license to ISGS. The company has also substantially negotiated the built-own-operation-and-transfer agreement with its counterpart Russian entity. The Russian side has submitted the price proposal which is 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 will be implemented through the nominated entities of both sides.

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

The entity by Russian side in the latest proposed structure is on the Sanction Watch List of the US government. 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 is to follow a cautious approach.

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

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

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

The ECC in its meeting held on January 10, 2015 approved the North-South Gas Pipeline Project (Project) under government-to-government arrangement. Russia will hand over the project to Pakistan after 25 years.

The existing gas infrastructure of Pakistan lacks capacity to transport additional large volume of gas supplies from southern to northern regions of the country. Therefore, keeping in view the expected additional gas supplies in near future, Ministry of Petroleum and Natural Resources has planned to undertake the laying of gas pipeline from Karachi to Lahore under the title “North-South Gas Pipeline Project.