Russia is increasing diplomatic efforts to revive ties with Pakistan through a $2.5 billion natural gas pipeline while offering to bolster anti-terrorism support. Analysts see the moves as a bid to acquire a new energy market to offset declining business from the West and to increase regional heft as the U.S. deepens ties with India and leaves Afghanistan.
On July 15, a Russian delegation signed a pact in Islamabad stipulating the terms for the PakStream Gas Pipeline (PSGP) project, formerly known as the North-South Gas Pipeline Project.
The 1,100-km pipeline will more than double Pakistan’s current capacity to transport 1.2 billion cu. feet of imported natural gas per day from liquid natural gas terminals in the southern port of Karachi to Punjab in the north, where there is high demand. It is expected to come on stream by 2023
Some government officials had raised doubts about awarding the contract to Russia when local companies could build a cheaper pipeline. The government, however, went ahead with the deal, citing Russian expertise with wider gas pipes and the technical limitations of the local companies.
The pipeline will be the first major Russian investment in Pakistan in decades since it helped establish the Oil and Gas Development Company in the 1960s and Pakistan Steel Mills in the 70s.
Relations between the two states weakened in the 1980s when Pakistan helped the U.S. funnel military and financial aid to Afghan mujahedeen against the Soviet-backed government.
Now, however, Russia under President Vladimir Putin is scouting for new gas markets since Europe — Russia’s biggest energy client — is shifting toward cleaner gas from the U.S., according to Osama Rizvi, an analyst at Primary Vision, a U.S.-based commodities consultancy. “For Pakistan, this is indeed a very positive development as the country suffers from a huge shortfall of energy,” he said.
Pakistan has relied on indigenous gas reserves for power during most of its 74-year existence. In the past two decades, however, the country has struggled to raise gas production and upgrade its energy infrastructure in the face of rising demand from a growing population and industrialization.
Since 2015, Pakistan has mostly bought liquid natural gas from Qatar under a long-term contract or through spot buying on the international market to plug the supply gap.
Last month, an LNG terminal unexpectedly closed down for maintenance when a local gas field was also shut, sparking public outcry over widespread gas outages and exposing Pakistan’s fragile energy supply chain.
The government led by Prime Minister Imran Khan is trying to fast-track gas infrastructure to meet future energy demands. Two new LNG terminals and underground storage at Port Qasim in Karachi are planned to be added in the next three years, in addition to PSGP.
Initially, a gas pipeline agreement with Russia was signed in 2015 under the government of then-Prime Minister Nawaz Sharif. But work on the project stalled for six years mainly due to Western sanctions on Rostec — Russia’s state-controlled tech giant that had a stake in the project — over Russia’s annexation of Crimea in 2014.
Following renegotiations, Russia’s controlling stake in the project was reduced to 26% from 80%, while the majority stake and right of operatorship were given to Pakistan.
“It seems the project has been designed to avoid sanctions,” said Owais Arshad, an Ontario-based risk analyst who advises financial institutions. “In particular, the ownership percentage is below the threshold that would normally trigger punitive measures by the U.S.”
U.S. sanctions on Russian energy companies target international projects where Russian entities have a 33% or greater stake.
The foreign office confirmed early this month during a news conference that invitations have been exchanged for the two heads of state to visit, but no schedule has been decided.
The development comes amid a slew of high-level diplomatic meetings, most significantly Russian Foreign Minister Sergey Lavrov’s visit to Islamabad in April — the first visit of a Russian foreign minister to Pakistan in almost a decade. Lavrov promised to supply Pakistan with “special military equipment” to fight terrorism. Both sides also agreed to hold frequent joint military drills.
“So far, Russia’s defense cooperation with Pakistan has been a relatively new and limited phenomenon,” said Krzysztof Iwanek, head of the Asia Research Center at the War Studies University in Poland. “Over the past few years, an agreement to cooperate in security has been signed, a few Russian helicopters have been sold to Pakistan, officers of both countries visited each other, joint military exercises have been held.”
On the other hand, the Afghan peace process has been central to discussions between national security advisers and foreign ministers of the two states in recent months. Russia is hosting Afghan reconciliation talks with the Taliban that include Pakistan.
“Russia wants to step up its game in Afghanistan as a diplomatic actor in the Afghan reconciliation process, and so Pakistan — with its close ties to the Taliban — is a useful partner,” said Michael Kugelman, deputy director of the Asia Program at the Wilson Center, a Washington think tank. “Russia is moving closer to China, a key Pakistani ally. And Russia’s long-standing relationship with India is starting to lose momentum amid deepening U.S.-India ties.”
Iwanek also noted that Russia could be reaching out to Pakistan in response to enhanced U.S.-India security cooperation, particularly arms sales. But even while this is a significant irritant, it has not led to a total breakdown of India-Russia relations, he added.