ISLAMABAD: A legal notice served by Saudi and Kuwaiti shareholders of KE is talk of the town but the key question which is under discussion who leaked the document.
The legal notice says that as noted, the Investors are a group of Saudi nationals and Kuwaiti companies and are qualifying investors for the purposes of Article 1(6) of the OIC Investment Agreement.
As a consequence of the privatisation of K-Electric Limited (Pakistan) (“KE”) in about 2005, AJPL and Denham collectively own 46.2% of KES Power Limited (Cayman Islands) (“KESP”), which in turn holds a 66.4% of KE. The Saudi Investors (through AJPL) and the Kuwaiti Investors (through Denham) are beneficial owners of at least 30.68% in KE. A further 10.5% in KE is owned by Mashreq Bank. The Investors’ shareholding, inter alia, is a qualifying investment by the Investors in the terms of Article 1(5) of the OIC Investment Agreement.
The Saudi Investors hold further qualifying investments through their indirect ownership of WCL, which in turn holds an indirect interest in KE through the Infrastructure and Growth Capital Fund L.P. (Cayman Islands) (the “IGCF Fund”). WCL also holds a financial interest in the proceeds of the sale of shares in Cnergyico Pakistan Limited (Pakistan) (“Cnergyico”), a transaction in which sale proceeds were subsequently misappropriated.
The Investors have invested in Pakistan for in excess of twenty (20) years. They have made capital and equity injections, together with debt funding and reinvestment of all profits, into KE. Those investments have enabled KE to invest US$4.6 billion across the ‘power value chain’ in Karachi and has resulted in significant operational improvements. These operational improvements have benefitted Pakistan with savings of over US$3 billion. Significantly, the Investors have not taken any dividends since KE’s privatisation.
Three overlapping disputes have arisen in connection with these Investments.
On about 28 October 2016, KESP entered into a Sale and Purchase Agreement (the “SPA”) with Shanghai Electric Power Company Ltd (“SEP”) for the sale and acquisition of KESP’s 66.4% stake in KE in exchange for US$1.77 billion.
The SPA was negotiated and executed with the knowledge and express support of Pakistan’s ministries and regulators, subject only to the completion of the necessary governmental and regulatory approvals (the “Pakistan Conditions”) including: (i) the tariff determination by National Electric Power Regulatory Authority (“NEPRA”) under the Multi-Year Tariff (“MYT”) framework; (ii) foreign-exchange, taxation and national-security clearances from the Ministry of Finance and the Privatisation Commission; and (iii) certain competition approvals.
KESP fully performed its obligations under the SHA, cooperated with all regulatory requests, and repeatedly granted and obtained extensions of the SPA’s long-stop dates to accommodate delays by the Pakistani authorities.
For more than eight years, Pakistan’s ministries and regulators failed to act in good faith to grant or process the required approvals. Government agencies provided inconsistent instructions, imposed new and extraneous pre-conditions (including the settlement of historical payables between K-Electric and government-owned entities), and refused to issue the final no-objection certificates necessary for completion.
Those failures prevented completion under the SPA despite KESP’s continuous compliance.
The Investors understand that SEP has now terminated the SPA on the basis of non-fulfilment of the Pakistan Conditions. As a result, KESP’s right to realise its investment will be lost.
Pakistan’s action and inaction has entailed, inter alia, the following violations of the OIC Agreement: (i) Indirect Expropriation (Art. 10): By indefinitely withholding approvals essential to realise the value of its shares, Pakistan effectively neutralised KESP’s ownership rights and deprived it of the economic benefit of its investment ;(ii) Failure to Allow Free Transfer of Capital and Returns (Art. 11(1) – (3)): Pakistan’s administrative / legal non-action and de facto restrictions prevented the transfer of the capital proceeds from the sale within the time and terms mandated by Article 11, frustrating the remittance of sale consideration ; and (iii) failure to Permit Freedom to Dispose (Art.12): Pakistan’s actions prevented KESP from disposing of its invested capital by sale to the agreed purchaser, contrary to Article 12.
On 5 January 2023 (the “2023 Notice”), the Investors issued a notice to Pakistan under the OIC Investment Agreement (attached as Annex I). The 2023 Notice noted as follows: (i) under certain agreements, Pakistan and/or its entities were required to make payments to KE, such as the Tariff Differential Subsidy (“TDS”) and energy dues of strategic customers; (ii) these payments were delayed; (iii) those delays resulted in delayed payment by KE to various entities controlled by Pakistan; (iv) while Pakistan denied any right upon the part of KE to receive late payment charges, the various Pakistan entities claimed (and continue to claim) punitive late payment charges from KE.
Following the receipt of the 2023 Notice, Pakistan contacted the Investors and provided repeated assurances that the underlying issues would be resolved to the mutual satisfaction of all parties. In furtherance of these assurances, KE, Pakistan, and various of its governmental entities (collectively, the “Government Entities”) entered into an agreement dated 16 February 2024 (the “Mediation Agreement”). The Mediation Agreement provided for the resolution of various disputes between KE and the Government Entities (the “Mediation Agreement”). It was agreed that the mediator would be Mr. Ashtar Ausaf Ali (the “Mediator”). Ends
