State vs foreign investors: Govt approves TSG for legal, arbitration expenses
ISLAMABAD: The government has approved Technical Supplementary Grant (TSG) of Rs4.327 billion to meet legal and arbitration expenses in disputes involving the Government of Pakistan (GoP) and international investors, including shareholders of K-Electric, well-informed sources told Business Recorder.
The main litigations/arbitrations involve M/s Karim-ud-Din (Halmore Power), M/s Star Hydropower Limited (SHPL), and shareholders of K-Electric.
According to sources, the Power Division apprised the Economic Coordination Committee (ECC) that local and international legal teams had been engaged to represent and defend the GoP in these proceedings in accordance with the Standard Operating Procedures (SOPs) for hiring foreign law firms.
Under the SOPs, the relevant ministry or division is responsible for formalising engagement terms with reputable international counsel and ensuring timely payments to arbitration forums, including the London Court of International Arbitration (LCIA) and the Permanent Court of Arbitration (PCA), in order to avoid procedural delays and safeguard the state’s interests.
The Power Division has engaged various law firms under fee structures approved by a committee headed by the Office of the Attorney General.
In the Halmore Power case, investor-state arbitration under the UK-Pakistan Bilateral Investment Treaty (BIT) has reportedly claimed approximately USD 80 million in relation to a 225-MW power plant. The allegations include discriminatory and coercive renegotiation.
In the case involving K-Electric shareholders Abdul Aziz Hamad Aljomaih (Saudi Arabia) and Combined National Industries Fielding (Kuwait), arbitration has been initiated under Article 17 of the OIC Investment Agreement. The dispute involves alleged regulatory interference in the proposed sale of K-Electric shares to Shanghai Electric Power, non-payment of dues, and issues relating to consumer tariffs and regulation.
The Power Division had sought Rs1.179 billion in the current fiscal year (FY2025-26) and Rs3.794 billion for FY2026-27 and FY2027-28 to meet expenditure relating to these arbitrations.
However, no allocation was made in Demand No. 35 of the Power Division’s budget for FY2025-26. Consequently, invoices amounting to USD 314,891 from M/s Mayer Brown LLP and USD 288,497 plus Rs2.11 million from M/s 3C and BNR could not be paid.
The Power Division had proposed an allocation of Rs4.240 billion for FY2026-27, but no allocation was made to the division during the current fiscal year. However, Rs4 billion has been earmarked in the Finance Division’s budget for international arbitration.
According to sources, the Power Division is also engaged in litigation with K-Electric before the Sindh High Court, for which legal counsel was engaged with the concurrence of the Law and Justice Division. The counsel’s fee is to be met from the Power Division’s own budget. During FY2025-26, the counsel invoiced Rs8.5 million, while payments for these invoices and current fiscal year expenses are also required to be met from the budgetary allocation.
The Power Division further informed the ECC that Rs100 million had been received as an advance for payments to the arbitrator and law firm in connection with arbitration involving Independent Power Producers (IPPs) under the 2002 Policy. Currently, Rs129.334 million is available in the relevant account with CPPA-G.
In order to initiate engagement with legal counsel in the Halmore case, CPPA-G management was requested to pay Rs134 million to M/s Mayer Brown LLP. The available balance in the account, along with markup up to the date of adjustment, may subsequently be adjusted against payments made by CPPA-G in the Halmore case.
The Power Division sought a TSG of Rs4.327 billion for the current fiscal year to meet arbitration expenses and reimburse costs already paid by PPIB and CPPA-G relating to legal counsel fees, arbitration forums and other associated costs in the K-Electric and 2002 Policy IPP arbitration cases.
The summary was circulated among the Finance Division, Ministry of Law and Justice, Attorney General of Pakistan, CPPA-G and PPIB for their views and comments. CPPA-G endorsed the proposal, while PPIB confirmed payments already made in connection with the arbitrations. The Law Division also endorsed the summary, while the Office of the Attorney General of Pakistan conveyed no objection and requested that the matter be prioritised to safeguard Pakistan’s interests.
The Finance Division, however, was of the view that legal costs relating to the arbitrations should be borne by PPIB and CPPA-G, as they are signatories to the relevant project documents. Where a joint defence is required, the cost could be shared among the entities and the Power Division.
The Power Division disagreed, maintaining that the Finance Division’s stance was not relevant because the arbitrations were directed against actions of the State and did not arise from obligations under the power purchase agreements (PPAs).
It further argued that payments relating to cases involving government guarantees under Implementation Agreements were being proposed to be made by the GoP.
CPPA-G, on the other hand, was of the view that under the State-Owned Enterprises (SoEs) framework, such liabilities did not rest with the companies and the costs could not be passed on to consumers without approval from the National Electric Power Regulatory Authority (Nepra).
While explaining the background, the Power Division stressed the urgency of clearing the country’s outstanding legal obligations. It maintained that, as the litigation involved the GoP, outstanding invoices needed to be paid in a timely manner to avoid additional costs arising from delayed legal representation.
The ECC, after endorsement by the Finance Division, approved the proposal.
Copyright Business Recorder, 2026