Cases in international courts swallow billions

Power Division estimates arbitration-related expenses at Rs3.79b over two years

ISLAMABAD:

Pakistan's government is currently fighting several cases pertaining to the power sector in international courts and is spending billions of rupees, which sparks questions about consistency of investment policy.

These cases have been filed by different investors, who allege breach of contracts by the government of Pakistan.

Earlier, in a case related to the Reko Diq copper and gold mining project, the international court imposed a $6 billion penalty on Pakistan. Later, the government reached a settlement with the Canadian firm involved in the project.

Recently, the government has approved a Rs4.3 billion grant to fight cases involving the independent power producers and K-Electric shareholders in international tribunals. The grant covers reimbursement of legal costs already paid by the Private Power and Infrastructure Board (PPIB) and the Central Power Purchasing Agency-Guarantee (CPPA-G) as well as adjustment of advances released by CPPA-G along with accrued markup.

The decision follows concerns that delay in paying legal fees could adversely affect Pakistan's defence in ongoing international proceedings. According to officials, Pakistan is currently defending high-value international arbitration cases, which involve alleged contractual breaches, regulatory interference and payment disputes.

Among these, three arbitration proceedings have been initiated by Star Hydropower Limited before the London Court of International Arbitration, an investor-state arbitration has been filed by Halmore Power owner Karim-ud-Din under the UK-Pakistan Bilateral Investment Treaty and an arbitration triggered by major shareholders of K-Electric under the Organisation of Islamic Cooperation (OIC) Investment Agreement.

Halmore Power has reportedly claimed around $80 million in damages over alleged discriminatory treatment and coercive contract renegotiation pertaining to a 225-megawatt power project.

Meanwhile, K-Electric's foreign shareholders have challenged alleged regulatory interference, which includes delays in the proposed sale of shares to Shanghai Electric Power, non-payment of outstanding dues and disputes relating to tariffs and consumers.

International and domestic legal teams have already been engaged under the government's standard operating procedures to hire foreign law firms. Legal teams include Howard Kennedy, King's Counsel Toby Landau, Cornelius, Lane & Mufti, Mayer Brown International LLP, Three Crowns and BNR Pakistan, depending on the case.

Officials say timely payment of arbitration costs, tribunal and legal counsel fee is essential to avoid procedural setbacks before forums such as the London Court of International Arbitration and the Permanent Court of Arbitration. Delays, they warn, could weaken Pakistan's legal position and increase overall litigation costs.

The Power Division estimates that arbitration-related expenditures will reach Rs1.179 billion for the current financial year and Rs3.794 billion for FY 2026-27 and FY 2027-28. As no allocation has been made in the budget, the concerned ministry sought a supplementary grant to meet immediate payment obligations and reimburse expenditures already incurred by government entities.

The Ministry of Law and Justice, the Office of the Attorney General of Pakistan, PPIB and CPPA-G supported the proposal. The Attorney General emphasised the need to prioritise the matter in order to safeguard Pakistan's legal interests in international forums.

The Finance Division, PPIB and CPPA-G were required to bear legal expenses for being signatories to project agreements and share costs where joint legal defence was required. However, the Power Division maintained that investor-state cases had stemmed from actions of the government of Pakistan rather than contractual obligations under the power purchase agreements.

It further argued that liabilities arising from sovereign guarantees under implementation agreements rested with the federal government. CPPA-G contended that, under the state-owned enterprises framework, such litigation costs could not be treated as liabilities of public companies or passed on to electricity consumers without approval from the National Electric Power Regulatory Authority.