Pakistan’s oil and gas sector has undergone a substantial loss of over Rs51 billion following a decline in energy demand amid the coronavirus pandemic. This number also involves revenue losses because of petroleum tariff, discount and royalty on oil and gas. The upstream industry, which includes oil and gas exploration, drilling and production, contributed to an additional loss of Rs15.5 billion.
Pakistan and Russia agreed on starting a gas pipeline back in 2015. As per the signed Inter-Governmental Agreement (IGA), Russia had to construct the gas pipeline project on its own, with 100 percent sponsoring. According to the mentioned project, Russia had to build the pipeline based on the build, own, operate and transfer (BOOT) model, and had to handover the possession of the pipeline to Pakistan after 25 years. Furthermore, as per this model, Russia had to subsidize 85 per cent of the obligatory expenditure on the project while Pakistan had to spend 15 percent of the capital. The project was later held up due to a difference over fees and US sanctions against Russian state conglomerate Rostec.
In a major development, Pakistan and Russia recently signed the revised Inter-Governmental Agreement (IGA) in Moscow for the flagship project of North-South Gas Pipeline (NSGPP). Soon after the official signing, the pipeline project renamed as Pakistan Stream Gas Pipeline (PGSP). According to the Pakistani officials, the cost of the project has been estimated at $2.25 billion. Under the revised IGA, Pakistan will be having the major shareholding with 74 percent stakes in the pipeline of 1,122 kilometers from Karachi (Port Qasim) to Kasur (Punjab) and Russia will have 26 per cent equity.” It is revealed that this construction of 1,100 kilometer (684 miles) pipeline will be starting in July this year.
Pakistan will have a majority share of 51% to 74% in the project, whereas Russia will own the rest. Pakistan’s gas supply companies Sui Southern Gas and Sui Northern Gas Pipelines Ltd, which are in progress of obtaining land for the pipeline, will be a part of the project, while a Russian conglomerate will lead construction. In recent years, Pakistan has become one of the top-most developing markets for the super-chilled fuel. It is because the domestic gas production has plateaued, compelling Pakistan to import cargoes. The country has also auctioned a record 20 oil and gas blocks to inspire exploration activity.
Five years ago, Pakistan imported its first cargo and presently the country has two LNG terminals. Two terminals are running at capacity to encounter ultimate winter demand. Two more LNG terminals, Energas and Mitsubishi’s Tabeer Energy, are estimated to start in coming few years. It is pertinent to mention that Pakistan already has LNG deals for 700 million cubic feet a day. The incumbent Government will choose if the country desires to have another medium-term LNG contract for five years after reviewing demand from power generators. This was already decided that Pakistan would only import cleaner Euro-5 diesel from January this year after doing the same for gasoline in the same time.
Besides imports, Pakistan also has strategies to augment 150 million cubic feet a day of domestic gas output. The relations between Pakistan and Russia are growing and the gas pipeline project is an evident example of this. In April this year, Russian foreign minister Sergey Lavrov visited Pakistan and met his counterpart Shah Mehmood Qureshi as well as other high authorities. The next month agreement regarding the Gas pipeline was redefined. Over the recent past, expanding partnership in economic, trade and energy sectors has been the emphasis of the two countries. The prospects of Russian President Vladimir Putin’s maiden trip to Pakistan have revitalized after the revamping of gas pipeline agreement between Islamabad and Moscow. The project not only has monetary but strategic implications for Pakistan.
Pakistan was in quest of broadening ties with Russia as part of its determinations to diversify its foreign policy options. Prime Minister Imran Khan has already extended a formal invitation to President Putin. Pakistan is very much interested that President Putin inaugurates the groundbreaking of the gas pipeline project, which may start later this year or at the start of next year. The predicted visit of President Putin will be the conclusion of years of struggles by two countries to open an innovative chapter in their relations that were spoiled by the Cold War rivalry. Russia Pakistan relations have many constants and variables. Constants could be acknowledged as geographical factors most particularly the presence of India being a neighbor.
Variables can be defined as Russian defence and energy surpluses, US aggression towards Kremlin, China and Pakistani market. The post-Soviet reconciliation between Russia and Pakistan started in 2011 after Pak-US associations decreased. In policy standardization, Pakistan decided to restore relations with Russia by availing the options of Military diplomacy as well as focusing on many other initiatives. A noticeable modification is ongoing in Russia’s geo-strategic calculus. It is gesturing to India not to believe Moscow’s full loyalty if it continues to incline towards the United States. China-Russia friendship remains another reason. Pakistan requires playing very vigorously and tolerantly possessing adaptable expectations.
Russia has not only showed interest to participate in the gas pipeline project but also in electricity and various other energy projects. In 2019, Russia had announced strategies to invest $14 billion in the energy sector of Pakistan. Furthermore, both countries are collaborating on the Afghanistan peace process as Moscow aggressively pursues to build closer relations with Islamabad. It is also imperative for Pakistan to revamp its diplomatic priorities. Russia is an evolving global power of the world and being situated in the region can play a more effective role in regional peace. While Russia and Pakistan work together having the same opinion can bring better outcomes by playing an assertive role in geopolitics of the region.
The significant convergence on Afghanistan is making way for better relations between the two countries. The growth of productive relations between Russia and Pakistan is an imperative factor in safeguarding regional stability as well as international security. Russia recently lifted the ban on import of Pakistani rice. This ban was imposed two years ago over changes of quality of the rice in Russia and Pakistan. There is a market of 2.5 million tonnes of Pakistani rice to Russia and Pakistan is exporting rice to 140 countries. Russia has primarily given approval to four firms to export rice, while more companies will be permissible after inspection by Russian authorities. The massive energy resources of Russia and other Central Asian countries are vibrant for their economic and political future.
On the other hand, Pakistan’s desire to mend ties with the Kremlin means that Pakistan wishes to develop bilateral relations with every country and regional power on its own merits. The main challenge, however, is to put the policy commitment into realism in the form of trade, defence and economic collaboration through equally advantageous projects. For Pakistan and Russia, the priority areas remain the building of the multi-billion dollar gas pipeline project is an evident example of changing scenarios in the region. Despite the downfall of the USSR three decades ago, an occasion of heroic proportions that altered the global political, economic and strategic landscape with the US lording it over as the sole superpower of the world, Russia remains an important regional player with substantial military, diplomatic and political influence.
Under President Putin, Russia has sensibly been projecting its influence and control in different regions. This very powerfully suggests that the newly agreed project might be but the first in a sequences of comparable megaprojects all throughout the country over the next decade, which would bring into line with both countries’ corresponding balancing strategies vis-a-vis one another. Russia can also demonstrate India that it has regional replacements to that country in the event that New Delhi replaces Moscow’s existence in certain domains with its Western entrants in its place. It is also important to mention that, Pakistan is not a replacement for India, but it is perceived by Russia as a complementary component of its inclusive South Asian balancing strategy.
Pakistan’s energy corridor is something, which has great importance not only for Pakistan but also for the whole region. For the same reason since 1990s, Pakistan has been encouraging the construction of transnational oil and gas pipelines. To ease the domestic energy predicament by importing oil and gas from the Gulf, Western Asia, and Central Asia through pipelines, Pakistan plans to build more energy pipelines. The ongoing phase of evolved relations between two countries is indeed a good omen not only for mutual interest on the both ends but also for the whole region.