Pakistan-Russia Economic Relations

Pakistan-Russia economic relations steadily evolved with a huge scope. Following the brief period of their economic relations in the post-Cold War era, the time for fortunate opportunities is again ticking off in the post 9/11, offering both Moscow and Islamabad to act rationally under their common strategic and economic interests and stances on matters involving regional and international sensitivities.

The recent engagements between both countries amid changing geopolitical and geostrategic environment along with evolving inter-regional economic prospects and emerging threats to regional stability have steered them to define a new era of friendship.

The rationale behind Pakistan-Russia economic relations are Russia, being a major regional and world power, having great economic potential, the right to exercise the veto power at the UNSC and leading member of the Shanghai Cooperation Organization (SCO), relations would be crucial for Pakistan. Pakistan needs foreign capital inflows, direct foreign investment, and access to enormous reserves of Central Asia for reviving its economy. It can benefit from Russia in the domains of infrastructure development, education, technology sharing, trade and energy.

The country can be a competitive source of agricultural and textile goods for Russia. On the other hand, the falling global oil prices amidst 2014 leading to the substantial revenue decline in energy-exporting states have possibly pushed Russian policy-makers to explore more venues in politico-economic and strategic engagements with other regions of the world including SA for exploring prospective markets for its manufacturing and investments to sustain its economy.

In 1956 the former USSR and Pakistan established their trade relations under an agreement, whereof Pakistan had to export cotton, jute and leather to Russia, following which the Soviet Union founded heavy industrial era in Pakistan by laying down the “foundation of Pakistan Steel Mill on December 30, 1973,” for which it rendered technical and monetary assistance by lending a loan worth US$ 200 million.

In the post-Cold War, they established an inter-governmental commission for trade and economy in 1999 and concluded a bilateral agreement on trade and economic cooperation to replace the 1956 agreement. Subsequently, the Pakistan-Russia Intergovernmental Commission (IGC) on Trade, Economic, and Scientific and Technical Cooperation were raised in 2009 to open up the avenues of bilateral economic ventures. Likewise, to stimulate commerce and tourism the Pakistan-Russia Business Forum (PRBF) was founded in 2009. Further, the Business Council for Promotion of Trade with Pakistan is operating successfully since its inception in 2011, thereby seeking to promote mutual economic collaboration.

To this end, a Russian delegation visited Pakistan in September 2012 and concluded Memorandum of understandings (MoUs) for undertaking Russian investment in the fields of Pakistan Steel Mill, metallurgy, railways, power, science and technology. Pakistan-Russia economic cooperation became institutionalized when five Joint Working Groups (JWGs) on trade and finance, energy, food and agriculture, banking, and industries were established by both countries during the fourth meeting of IGC in 2015, thereby exploring the ways and means in their bilateral cooperation in all the fields of mutual interests.

Moreover, for promoting cooperation in the fields of financial systems’ development, payment systems, financial infrastructure, and financial institutions’ supervision, the State Bank of Pakistan and the Central Bank of Russian Federation joined hands for bilateral central banking cooperation after signing the MoU in Moscow on January 15, 2018. Presently, Russian imports from Pakistan include cotton yarn, fabrics, vegetables, fruits, rice, nuts, textile goods, sports goods, leather and leather products and, pharmaceutical products. Pakistan enjoys the status of being the chief exporter of tangerine and potato to the Russian Federation.

The Russian exports to Pakistan comprise fertilizers, paper board, raw ferrous and ferrous products. Pakistan-Russia trade is witnessing a gradual rise. In 1980, the Pakistan-USSR bilateral trade size just amounted to US$ 95 Million, which is 2017-18 subsequently rose to US$ 732 Million.

Actually, the Pakistan-Russia economic rapprochement is gradually being cemented further under the inter-regional economic imperatives, involving transnational mega-projects like the BRI and its pilot project China-Pakistan Economic Corridor (CPEC), EurAsEC and EAEU, the Central Asia Regional Economic Cooperation, and Iran-Pakistan Gas Pipeline (IP). Pakistan is situated at the crossroads of the South, West and Central Asia can play an important role to realize Russian vision of Eurasian Economic Community in the long run.

One of the prominent areas of cooperation in Pakistan-Soviet relations during the Cold War was the energy sector, which is still formed the core of Pakistan-Russia economic collaboration. Moscow established an oil consortium titled ‘Pakistani Oilfields’ in 1958. Alongside, the former USSR enabled Pakistan to establish Oil and Gas Development Company (OGDCL) by lending Pakistan a loan of Rubles 27 million in 1961 for local oil and gas exploration. The same trend in their energy cooperation has been seen in post-Cold war era when both countries signed MoUs in 2012 that involved extending technical assistance to Guddu and Muzaffargarh power plants and New Jamshoro Power Plant (GENCO) of 500 MW capacity and Tarbela-4 project.

Other MoUs pertained to the Russian assistance for electricity transmission from Kyrgyzstan and Tajikistan to Afghanistan and Pakistan (CASA-1000) in the Central and South Asia. Parallel to this, efforts are still underway for establishing Iran-Pakistan gas pipeline, besides involving Russian technical assistance for and Coal gasification technology for the Thar Coal Project. Likewise, to construct a North-South gas pipeline from Lahore to Karachi (1100 kilometre) Pakistan and Russia signed an energy agreement in 2015, whereof Russia would invest US$ 2 billion. The route survey of the North-South gas pipeline has so far been completed in January 2018.

To promote mutual cooperation, joint ventures and use of the sophisticated technology for energy sector explorations, the Gazprom International and Pakistan’s OGDCL concluded an MoU on July 3, 2017, which would bring estimated US$ 4 billion capital inflows to Pakistan. On January 31, 2017, Khyber Pakhtunkhwa Oil and Gas Company Limited and a Russian consortium of investors (Inter-Rao Engineering and Himmash Apparat partnered with Orpheus Energy) concluded an agreement to establish an oil refinery having the capacity to purify 200,000 barrels oil per day. As a major sign of increasing economic cooperation, Pakistan and Russia on February 6, 2019 signed an intercorporate agreement for the laying of more than 1,500 km offshore gas pipeline costing $10 billion that would be transporting natural gas from the Russian gas company Gazprom’s sources in the Middle East to Pakistan with possibility of extending it further to South Asian countries.

The unsettled issue of mutual financial obligations between Pakistan and Russia as well as a lack of connection between their corresponding banks are impeding their economic cooperation. Such an investment will potentially meet Pakistan’s energy needs, while contributing to economic buoyancy that would ultimately pave way for regional integration, specifically through transnational energy cooperation.

DISCLAIMER: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy and position of Regional Rapport.