Saudi-Kuwaiti Investors Launch $2bn Arbitration Against Pakistan Over K-Electric

Saudi and Kuwaiti investors holding a 30.7% indirect stake in K-Electric have initiated international arbitration proceedings against the Islamic Republic of Pakistan, seeking damages of up to US$2 billion. The claim, filed on January 16, 2026, is being pursued through Steptoe International (UK) LLP and Omnia Strategy LLP, representing 32 Saudi entities and five Kuwaiti companies that have been long-term shareholders since K-Electric’s privatisation in 2005.

The dispute centres on three principal grievances: (i) the prolonged and allegedly arbitrary blocking of the 2016 agreement for Shanghai Electric Power Company to acquire 66.4% of K-Electric, which investors contend amounted to indirect expropriation under international law due to shifting regulatory conditions, conflicting directives from multiple government agencies, and undue delays in obtaining national security and other mandatory approvals, ultimately causing the deal to collapse; (ii) chronic non-payment of tariff differential subsidies and other government receivables owed to K-Electric, some dating back nearly two decades, which have severely impaired the utility’s liquidity despite the imposition of late-payment penalties by state entities; and (iii) repeated interference with the independence of the National Electric Power Regulatory Authority (NEPRA), including the government’s failure to notify NEPRA’s final multi-year tariff determination of May 2025, reopening of settled tariff matters through procedurally flawed reviews, and imposition of revised tariffs described as confiscatory and economically unsustainable, potentially causing annual losses of approximately Rs85 billion to K-Electric.

The claimants further allege regulatory inaction in response to attempts by certain domestic investors to gain control of K-Electric through opaque offshore structures and undisclosed ownership changes, as well as the diversion of US$66 million from the sale of shares in Cnergyico (a PSX-listed entity) to offshore accounts without requisite approvals, despite prior notifications to regulators.

The investors invoke protections under the Organisation of Islamic Cooperation (OIC) Investment Agreement, including safeguards against expropriation, fair and equitable treatment, free transfer of funds, and access to effective remedies. They also seek to rely on Pakistan’s bilateral investment treaties with Bahrain and Switzerland through the most-favoured-nation clause.

This arbitration represents a significant international legal challenge with potential far-reaching implications for Pakistan’s regulatory framework, treatment of foreign investment in the power sector, and its obligations under bilateral and multilateral investment treaties.