The signing of an agreement between Pakistan and Russia on construction of $2.5 billion Pakistan-Stream Gas Pipeline (PSGP) project of 1,040km with a gas transmission capacity of 1,600mmcfd from Port Qasim to Kasur in Islamabad last week is a landmark development in relation to the revival of economic and strategic relationship between the two countries after as many as 48 years.
It was way back in 1973 when Pakistan invited the then Soviet Union to build its first-ever steel mill, Pakistan Steel Mills, at Karachi. The strategy was aimed at boosting the Pak-Soviet bilateral ties. The PSGP project seems to have injected the same strategy into the bilateral relationship of Pakistan and Russia, the successor state to the then Soviet Union.
The PSGP project was originally announced in a joint statement of the Pakistan-Russia Inter-Governmental Commission in November 2014. For conflicting reasons and opinions, the matter of signing of the agreement between the two countries dragged on. Even today there are two conflicting opinions on the table. The Prime Minister’s special assistant on Power and Petroleum is in favour of awarding the said gas pipe line contact to Sui Southern and Sui Northern Gas Companies in the lead. According to him, these two computers can mobilize the required expertise and competence to execute the job. The relevant ministries, however, have a different view.
The opinion of the PM’s special assistant could have been somewhat valid years ago when these public sector enterprises were blue chip companies excelling in financial performance, competence and quality of human resources. Their performance is now hardly different from other public sector enterprises of the country.
The PSGP project is targeted to be completed by the end of 2023. It is unlikely that these public sector enterprises can muster the required competence to mobilise the resources and technology to meet the implementation target of 2023. The last project of similar nature executed in Pakistan was the cross-country US$ 480 million, 786km White Oil Pipeline project owned by Pak Arab Pipeline Company Limited (PAPCO) in 2007 to transport diesel from Karachi to the central regions of Pakistan. This pipeline accounts for almost 60% of the total petroleum that is consumed by the country. It was executed under an EPC turnkey contract awarded to China Petroleum - a public sector enterprise of China.
The government’s decision to award the contact to the Russians appears to be correct in view of several factors such as competence, project funding and collateral advantage of building up sound relations with Russia.
The Federal Energy Minister, Hammad Azhar, on the occasion of the ‘Head of Terms’ agreement signing last week was reported to have stated: “We want our relations with Russia to enhance further and in today’s day and age a sustainable way of improving relations is through economic relations. Pak-Russia gas pipeline would be the first proof of this economic engagement after a very long time. We partnered with Russia to develop the steel mills in the 1970s after which no major project was undertaken between the two sides. We would also like to improve our trade relations with Russia through the Central Asian States.”
The challenge ahead is to award the contract at a fair market price as this contract is unlikely to be processed under the regime of Competitive Bidding, much like the mega infrastructure projects being executed under the CPEC.
A competitive price level of the energy project is vital for the viability of the project and in determining the tariffs - be it electricity or gas. Among many factors, the high price of the projects is one of the key reasons behind higher tariffs in Pakistan. The IPPs set up in the country, for example, were high priced when compared to similar projects in the region. In the absence of a competitive bidding process, the government must determine a fair price level of the project by engaging competent experts in the field.
That the country cab hit by a gas crisis anytime soon is a fact. Hence the need for completing the Pak-Russia project by 2023 but at a viable cost.
(The writer is a former President, Overseas Investors Chambers of Commerce and Industry)
Copyright Business Recorder, 2021