PAKISTAN-RUSSIA COOPERATION IN DEVELOPMENT OF INFRASTRUCTURE & LOGISTICS

SYED FAZL-E-HAIDER
(feedback@pgeconomist.com)

Nov 5 - 11, 2012

Pakistan and Russia have signed three deals in power, railways and steel sectors in a move to expand economic relations between the two countries. Chairman of the Board of Investment (BoI), Saleem H. Mandviwalla recently told the journalists about three memorandums of understanding (MoUs), which were signed with a visiting Russian delegation comprising heads of Russian companies in Islamabad. The delegation that wrapped up its visit on October 3, had been in Pakistan since September 30. Moscow agreed to provide techno-economic assistance to revamp and expand Pakistan Steel Mills (PSM) capacity from the existing one million tons to 2.5 million tons over the next two to three years by investing $350 million to $500 million. Under another deal, Russia will develop infrastructures in Pakistan Railways bogies, tracks expansion and locomotives, while under the third accord Russia would help convert Jamshoro and Muzaffargarh power plants in Pakistan to coal. The Russian company, Tyazhpromexport will help the country establish PSM on modern lines, while Transmashholding CJSC will involve in rail sector projects.

While holding a meeting with the visiting Russian delegation in Islamabad last month, Prime Minister Raja Pervez Ashraf on Monday said Pakistan attaches great importance to its relations with Russian Federation and is keen to intensify economic ties between the two countries.

Pakistan can benefit from the state-of-the-art technology and expertise of Russian Federation.

Prime Minister Ashraf said "the Pakistan Steel Mills is a symbol of Pak-Russia relationship and expansion and rehabilitation with the federation would surely bring economic uplift for the country."

Russia is interested in investing in many power sector projects at a time when the country is facing chronic energy shortages. A MoU has been signed between Russia's Technopromexport and Pakistan's Genco Holding Company. Under the deal Technopromexport will help convert Muzaffargarh plants into ones based on imported coal and help construct New Jamshoro Power Plant having planned capacity of 500 to 600 megawatts.

Moscow has shown keen interest in major energy sector projects including the Central Asia-South Asia electricity transmission from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan (CASA-1000), $12 billion Diamer-Bhasha dam and also in Iran-Pakistan (IP) gas pipeline project, which is strongly opposed by US.

Despite cancellation of Putin visit to Pakistan this month, Russia is willing to make huge investments in the country, which is an important US ally in war on Al Qaeda and Taliban. Pakistan is also going to revise the Bilateral Investment Treaty (BIT) with Russia in an effort to enhance trade The reason given by Russian authorities for cancellation of President Vladimir Putin's visit to Pakistan was that Islamabad had not done the spadework necessary to execute major projects particularly in the energy sector. Russian presidential spokesman for Afghanistan and Pakistan Zamir Kabulov elaborated that three memorandums of understanding (MoUs) finalized by the two countries in September at a meeting of the Pakistan-Russia Inter-Governmental Commission, were to be signed during the Putin's visit to Islamabad. He however said that the MoUs were non-binding and largely a reiteration of agreements signed last year during President Asif Ali Zardari's visit to Moscow. Moscow's main concern was that there had been a lot of rhetoric on the Pakistani side but little progress towards meaningful cooperation.

"Russian-Pakistani relations have been on the rise in recent years but progress has been mostly at political and emotional levels, while economic ties have lagged behind," The Hindu newspaper reported Zamir Kabulov as saying. "The Asia Development Bank, dominated by Japan and the US-controlled World Bank appear reluctant to support ventures where Russia plays a lead role."

Pakistan-Russia relations witnessed steady growth after President Zardari visited Moscow last year. The two countries pledged to enhance economic cooperation through mega infrastructure and energy projects. The Putin's visit was geopolitically important for Islamabad facing pressure from a demanding Washington, which is also against the construction of Iran gas pipeline project. Islamabad is pressing ahead with the project even after the Industrial and Commercial Bank of China (ICBC) in March refused to sign a contract for financial advisory services to raise funds for the pipeline apparently due to US pressure.

Russia has already offered to build Bhasha dam if Islamabad awards construction contract through a government-to government deal without international competitive bidding. It wants a similar arrangement with Pakistan for undertaking the IP pipeline project. Financing is the Pakistan's main issue for both the projects. Moscow offered Islamabad to finance the IP pipeline project if its energy giant Gazprom was awarded the contract without bidding during a visit of Foreign Minister Hina Rabbani Khar to Moscow in February. The country's Economic Coordination Committee (ECC) of the cabinet in its meeting on March 13 decided to negotiate a deal on IP pipeline project with Russia. Talks on IP gas pipeline between the two countries were held in April during a visit to Moscow by a Pakistani delegation. Pakistani officials gave a presentation on IP pipeline project to Russian authorities. Russia agreed to extend financial and technical aid to the country for the gas pipeline portion in Pakistani territory that will cost $1.5 billion. The country will have to waive Public Procurement Regulatory Authority (PPRA) rules if it decides to award the contract for laying pipeline in its territory to Gazprom.

CASA project was supposed to supply Pakistan with about 1,000 megawatts of electricity for about five months during peak season at a cost of about $965 million. The project was designed in 2004 to export about 1,300 megawatts of electricity from Tajikistan and Kyrgyzstan, of which 300 megawatts would go to Afghanistan and the rest to Pakistan.

The analysts believe that all the energy projects are crucially important for the country, which direly needs a mega power project, as it continues to face extreme power shortage causing prolonged blackouts in rural and urban areas and a decline in industrial growth. They urge Islamabad to address the Moscow's concerns and expedite efforts to reschedule the Putin visit during which the agreements on mega energy projects were supposed to be signed.