In a significant escalation of tensions in Pakistan’s power sector, Saudi and Kuwaiti investors in K-Electric (KE) have initiated a $2 billion international arbitration case against the Islamic Republic of Pakistan.
The claim, filed under the OIC Investment Agreement, accuses the government, particularly the Power Division and the National Electric Power Regulatory Authority (Nepra), of breaching domestic laws and investment protections, rendering their substantial investments in KE commercially unviable.
The investors, including Abdul Aziz Hamad A Aljomaih and Combined National Industries Holding Company for Energy KSC, sent the arbitration notice through international law firms to key Pakistani officials, highlighting repeated delays and inaction by the state.
Background of KE Privatization and Investments
KE was privatized in 2005, marking a turning point for Karachi’s power utility. Since then, the Gulf investors have injected over $4.7 billion into the infrastructure from 2005 to 2025.582396
This funding transformed KE from a loss-making, corruption-plagued entity dependent on federal subsidies into a profitable, professionally managed private company. System losses were drastically reduced, and all profits—100% since privatization—were reinvested rather than distributed as dividends.
These efforts reportedly saved the Government of Pakistan (GoP) more than $3 billion in operational efficiencies. However, the investors claim that government failures have now deprived them of the economic value of their holdings.
Reasons for Arbitration and Government Inaction
The dispute stems from alleged infringements on the investors’ financial rights by the Power Division and Nepra. Prior notices about domestic law breaches were ignored, and a formal Notice of Dispute under the OIC Agreement went unaddressed for three months. This led to the inability to pursue conciliation, forcing the arbitration route.
The claimants argue that politically favored actors have benefited from the state’s delays and reversals. Additionally, issues like the misappropriation of proceeds from the sale of shares in Cnergyico have compounded the grievances. The notice was copied to high-level officials, including the Prime Minister and Finance Minister, underscoring the case’s gravity.
As Pakistan’s largest foreign private power investment hangs in the balance, this arbitration could strain international relations and investor confidence in the energy sector.