Third day of talks on PSGP: No sovereign guarantee for profit, Pakistan tells Russian team

Pakistan will not extend to Russia the sovereign guarantee against 26 percent shares in Pakistan Stream Gas Pipeline Project (PSGP). However, it has extended assurances to Russia which are enshrined in the amended Inter-Government Agreement (IGA). Pakistan will be having 74 percent shareholding and Russia 26 percent.

This was the essence of the third day of talks between Pakistan and Russian excerpts on the project of paramount importance. However, the Oil and Gas Regulatory Authority (OGRA) will determine the tariff of the pipeline. The regulator will include in the tariff the capacity charge and usage charge to bear the fixed and variable expenses. Both sides agreed to form a Special Purpose Company (SPC) to run the Pakistan Stream Gas Pipeline. The CEO and MD of SPC would be from Pakistan, a senior official who was part of the talks told The News.

The Russian team wants security of its investment with a guaranteed rate of return of 18 percent on its 26 percent investment. However, the Government of Pakistan has clearly told the Russian side that there will be no take or pay mode and no offtake guarantee also. However, the Russian side was told that OGRA will determine the tariff and the return will be ensured on the asset base.

They were also told that the tariff regime will be on cost transfer pricing mechanism wherein aggregate of prudent expenses incurred in connection with the regulated activity will form revenue requirement in respect of licensee. And the revenue requirement will be based on the cost of gas, operating expenses, return on regulated assets base, federal and government taxes, levies if any and transportation charges.

The official said that in the talks, representatives of local gas companies — Sui Southern and Sui Northern also participated. “The government wants to make local gas companies a part of the project and more share for local human resources in the project.”

However, he said, the Russian side wanted its nominated company Pakstream Limited to have a decisive vote on calculations and approval of the tariff for gas transportation under the project. The Russian side also wants the tariff to be calculated on a cost plus basis, taking into account the actual operating and capital expenditure of the Special Purpose Company, which will be responsible to run the project.

“Both sides deliberated the reworded Heads of Terms one by one. Both sides are satisfied with the positive direction of the talks. Till the filing of the report talks were underway.”

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