Pakistan and Russia on Friday signed an inter-governmental agreement for the construction of 1,100 km gas pipeline from Lahore to Karachi.

The agreement was jointly signed by Federal Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi and Russian Energy Minister Alexander Novak in a ceremony attended by Prime Minister Nawaz Sharif.

Russia will invest $2 billion in the project, the first phase of which is expected to conclude by December 2017.

The 1,100 kilometre pipeline with a capacity of 12.4 billion cubic metre per annum will connect Karachi’s liquefied natural gas (LNG) terminals with those in Lahore.

“Currently there’s an acute shortage of energy in the densely populated regions of Pakistan, specifically in the center and north of the country. It limits economic growth. The pipeline construction will be an important step towards solving this problem and will serve as the basis for cooperation with our Russian partners,” said Pakistan’s Minister for Petroleum and Natural Resources Shahid Khaqan Abbasi.

The North-South pipeline is the first joint project between Russia and Pakistan in many years. It is expected to open up a new market and opportunities for Russian companies in Pakistan’s energy sector.

The North-South gas pipeline is important as Pakistan lacks energy infrastructure.

The project will be implemented in compliance with BOOT model (Build Own Operate Transfer). The pipeline will be owned and operated by the manufacturer for 25 years. After that the pipeline will be handed over to the Pakistan government.

The gas pipeline will be owned and operated by RT Global Resources for 25 years and will then be handed over to the Government of Pakistan, according to RT.

The pipeline is scheduled to be completed by 2018 and will be commissioned by 2020.

The project will take cooperation between Russia and Pakistan “to a new level”, Mr. Novak said in a statement.

Pakistan Prime Minister Nawaz Sharif and Russian President Vladimir Putin during a meeting on the sidelines of the Shanghai Cooperation Organisation summit in Ufa earlier this year discussed progress on the North-South gas pipeline agreement and had decided to expedite progress on the project.

Mr. Sharif had said that Pakistan wished to develop a multi-dimensional relationship with Russia in the fields of trade, defence, energy, infrastructure, culture and other spheres.

In August, Pakistan and Russia signed a landmark defence deal for the sale of four Mi-35 ‘Hind E’ attack helicopters to Pakistan and are currently in talks about the delivery of Sukhoi Su-35 fighter jets.