Saudi, Kuwaiti investors file $2 billion arbitration case against Pakistan over K-Electric dispute

Saudi and Kuwaiti investors in K-Electric have initiated a $2 billion international arbitration case against Pakistan, citing regulatory interference, unpaid government dues, and the prolonged blocking of a $1.77 billion sale of the country's largest private power utility, The News reported. 

The arbitration case was filed on January 16, 2026, by Steptoe International (UK) LLP and Omnia Strategy LLP, representing 32 Saudi entities and five Kuwaiti companies, collectively holding a 30.7% indirect stake in K-Electric. These investors have been cornerstone shareholders in the company since its privatisation in 2005.

The dispute traces back to October 2016, when the investors agreed to sell 66.4% of K-Electric to Shanghai Electric Power Company. While the deal initially received support from Pakistani regulators, it was stalled for more than eight years, allegedly due to shifting regulatory conditions, contradictory instructions from government agencies, and delays in granting mandatory national security and other approvals. The investors argue that these delays ultimately led to Shanghai Electric walking away from the deal, alleging indirect expropriation under international law.

The arbitration case also highlights long-standing unpaid government receivables, including tariff differential subsidies owed to K-Electric, some dating back nearly two decades. The investors claim these unpaid dues have severely impacted the utility’s cash flows, even as penalties for late payments were continuously levied by government entities.

In addition to the stalled sale and financial disputes, the investors accuse the Pakistani government of undermining NEPRA, the country’s power regulator, by politicising K-Electric’s multi-year tariff framework. The investors claim that the government failed to notify NEPRA’s final tariff determinations issued in May 2025, reopened settled matters through flawed review processes, and imposed revised tariffs that they describe as confiscatory. These changes, the investors argue, could cost K-Electric around Rs85 billion annually, potentially making the utility economically unviable.

The arbitration filing also points to attempts by domestic investors to seize control of K-Electric through offshore structures, undisclosed ownership changes, and regulatory violations, despite repeated complaints made to regulators and enforcement agencies.

The investors also raised concerns about the diversion of $66 million from the sale of shares in Cnergyico, a Pakistan Stock Exchange-listed company. They claim the funds were transferred offshore without regulatory approval, and despite multiple alerts, Pakistani regulators failed to act.

The investors argue that Pakistan has breached multiple provisions of the OIC Investment Agreement, including protections against expropriation, fair treatment, free transfer of funds, and access to effective remedies. They have also invoked protections under Pakistan’s bilateral investment treaties with Bahrain and Switzerland through the most-favoured-nation clause.

Pakistan now faces a legal challenge that could have significant implications for the country’s regulatory practices and its relations with foreign investors.