No sovereign guarantee as EPC contractor, says Russia to Pakistan

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ISLAMABAD: The new law firm hired by the Inter State Gas System (ISGS) has asked authorities that Pakistan could face problems if the $ 3 billion Pakistan Stream Gas Pipeline project is completed as part of the Amended Intergovernmental Agreement (IGA) signed with Russia in Moscow.

The law firm wants to renegotiate some vital issues already settled under the amended IGA and the Heads of Conditions. It is relevant to mention that the IGA signed earlier in 2015 was amended and signed in May 2021 at the request of Islamabad, with Pakistan holding 74% of the shares and Russia 26%. Under the IGA signed in 2015, Russia was to complete the BOOT-based project with majority shares.

Official, legal and financial experts from Pakistan and Russia held secret talks for four days from November 16 to 18, which remained inconclusive, mainly on the Russian Designated Entity’s new sovereign guarantee and security request. , which will act as the main EPC.

Moscow says how it can give any kind of security and sovereign guarantee that is part of the project. “If Russia had authorized 100% financing of the project and also authorized the execution of the project on a BOOT (build, own, operate and transfer) basis, Moscow would certainly also have extended warranty and security,” said a senior official. , who was part of the talks while citing the Russian side, told The News.

“The Russian side says that the designated entities of the two countries will form a joint special purpose company which will execute and lead the project.”

According to an insider, now under a new scenario, the legal teams from both sides will meet in the middle of the current week and each prepare separate legal drafts on this particular issue, which will be debated for a consensus document in the next interaction. between the two countries.

Previously, talks were scheduled to start on November 9, but the letter written on November 5, 2021 by the petroleum division to the Russian Energy Ministry requesting renegotiation of issues settled under the amended AGR and heads of conditions forced Russia to prevent its delegation from participating in the talks, which were to begin on number 9. However, a Russian delegation came to Pakistan on November 16 and held four days of talks.

Senior government officials want the project to come to fruition as it will usher in a new era of economic cooperation with Russia. It is relevant to mention that in the past, Russia helped Pakistan build the Pakistan Steel Mills (PSM) and the country’s flagship oil and gas organization OGDCL. Pakistan recently imported wheat from Russia to meet its food needs. Pakistan and Russia have already developed a strategic partnership in the defense sector. However, at the level of the Ministry, there are certain elements which continue to be the subject of new requests causing delays in the project.

The amended IGA was signed in May 2021 with the announcement that within the next 60 days the special purpose company PSGP will be established to implement the project and deal with all technical and commercial matters. But the bitter fact is that five and a half months have passed but the shareholder and facilitation agreements have yet to be signed, which will lead to the formation of the PSGP SPC.

In the letter to the Russian Ministry, the Petroleum Division indicates whether a shareholder of the Russian Designated Entity (RNE) or its affiliates, associates or subsidiaries wishes to participate as a contractor in the work to be performed for the project, either by as the lead EPC contractor or as a subcontractor under the main EPC contract, in order to avoid conflicts of interest, it is advisable to exclude such a party as a shareholder of RNE.

The Petroleum Division would like additional contractual checks and balances in view of this particular case, in particular compliance with the usual provisions on conflicts of interest. The letter also states that the proposed EPC procurement strategy to be adopted should be clearly defined from the outset. In our humble opinion, given the scale of the project, it is imperative that the project be undertaken through a single main EPC contract. Dividing the elements of the EPC into multiple contracts without a primary EPC contractor being responsible for the project would not adequately protect against completion risks. Of course, subcontracts under the aegis of the EPC contract may be authorized, provided at any time that the EPC contractor is the sole ultimate responsible for the completion of the project.

The sources said that it is a known fact that there is no expertise that Russian companies have in terms of laying the gas pipeline across the world and that such requests from the oil division amount to denial. of the new IGA and the heads of Termes.

However, the sources said 70 percent of the issues were resolved and the remaining 30 percent had yet to be resolved. Senior Pakistan officials want to visit the pipe and compressor manufacturing facilities in Russia, knowing that it is the prerogative of members of the yet-to-be-formed Special Purpose Company purchasing committee to visit such facilities.

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