ISLAMABAD: A group of prominent Saudi and Kuwaiti investors has formallylaunched a $2 billion international arbitration claim against theGovernment of Pakistan, intensifying a long-running dispute centred onK-Electric, the country’s largest private electricity distribution companythat supplies power to over 3.7 million consumers in Karachi andsurrounding areas.
The arbitration proceedings were initiated on January 16, 2026, under theOrganisation of Islamic Cooperation Investment Agreement and the UNCITRALArbitration Rules. Thirty-two Saudi entities, prominently includingcompanies affiliated with the Al-Jomaih family, together with five Kuwaitifirms, constitute the claimant group. These investors collectively hold a30.7 percent indirect equity stake in K-Electric, acquired following theutility’s privatisation in 2005.
The claim arises from what the investors describe as repeated violations ofPakistan’s obligations to provide fair and equitable treatment, protectionagainst indirect expropriation and full security for foreign investments.Central to the grievance is the prolonged blockage of the proposedacquisition of a 66.4 percent controlling stake in K-Electric by ShanghaiElectric Power Company Limited of China, an agreement originally signed inOctober 2016.
Despite regulatory approvals from several Pakistani authorities between2017 and 2019, the transaction remains stalled primarily due to outstandingdisputes over circular debt, tariff determinations by the National ElectricPower Regulatory Authority and national security clearance requirementsimposed by the federal government. The investors argue that these delaysand interventions have severely eroded the value of their holdings.
According to legal documents submitted to the tribunal, the claimantsallege that successive administrations failed to honour binding tariffframeworks agreed during privatisation, leading to persistentunder-recovery of costs and accumulation of receivables. They furthercontend that arbitrary regulatory decisions, political interference inoperational matters and non-payment of approximately Rs 385 billion insubsidies and dues have rendered the investment commercially unviable.
The filing follows a formal notice of intent served in October 2025, inwhich the same group demanded compensation exceeding $2 billion for allegedtreaty breaches. Pakistan was given sixty days from the date of filing toappoint its arbitrator, failing which the Permanent Court of Arbitration inThe Hague may assume a default appointing authority role.
K-Electric was privatised in 2005 when Abraaj Capital-led consortiumacquired a majority stake, later restructuring ownership to include thecurrent Gulf shareholders. The utility has since invested heavily ingeneration, transmission and distribution infrastructure, yet it continuesto grapple with chronic cash-flow constraints exacerbated by the broaderpower sector’s circular debt crisis, which now exceeds Rs 2.6 trillion.
Analysts tracking the case note that an adverse ruling could significantlydamage Pakistan’s reputation among foreign investors at a time when thegovernment is actively seeking Gulf capital inflows to support economicstabilisation efforts. The country already faces multiple investment treatyarbitrations, including high-profile disputes involving mining,infrastructure and energy projects.
Read Top Stories
Legal experts familiar with bilateral investment treaty jurisprudenceexpect the tribunal to examine whether Pakistan’s actions amounted tofrustration of legitimate expectations created by specific commitments madeto the original privatisation bidders and subsequent shareholders.Questions surrounding the legality of national security vetoes over foreignacquisitions will also likely feature prominently in submissions.
The Government of Pakistan has yet to issue an official public response tothe commencement of proceedings. Ministry of Energy officials havepreviously maintained that unresolved issues related to generation tariffs,receivables and security concerns justify the delay in approving theShanghai Electric transaction. Private-sector stakeholders in the powerindustry view the arbitration as a potential catalyst for long-overduestructural reforms.
Should the claimants prevail, the awarded damages—potentially running intobillions of dollars—would add substantial pressure to Pakistan’s alreadystrained external account position. Observers anticipate that the case mayprompt renewed high-level diplomatic engagement between Islamabad, Riyadhand Kuwait City to explore an out-of-court settlement before thearbitration advances to the merits phase.
The outcome of this high-stakes dispute is being closely watched across theGulf Cooperation Council countries, whose sovereign wealth funds andprivate conglomerates maintain significant exposure to Pakistaniinfrastructure and energy assets. A ruling favourable to the investorscould reshape the risk calculus for future cross-border commitments inSouth Asia’s power sector.
Al-Jomaih family
ogimageimage-name
