The government advocates for all state-owned enterprises (SOEs) to resolve their disputes through local arbitration rather than international platforms.
To enforce the State-Owned Enterprises (government and operations) Act, 2023 is set to be amended, making local arbitration obligatory for domestic SOE disputes. International arbitration will be allowed only in agreements with foreign entities and with prior government permission, as confirmed by a senior official from the Ministry of Law and Justice.
The shift in policy comes after the Special Investment Facilitation Council (SIFC) advised the law ministry to prohibit public sector entities from seeking international arbitration. A notable dispute involving Sui Northern Gas Pipelines Limited (SNGPL) and National Power Parks Management Company (NPPMC), amounting to Rs14 billion, has underscored the need for this change. The law ministry has prepared instructions for these entities to engage in local dispute arbitration.
Recent Arbitration Cases and Future Directions
SNGPL had notified NPPMCL of its intention to pursue international arbitration over a residual amount of Rs14.6 billion. The federal government, concerned about the implications of paying penalties in foreign currencies, is steering these entities towards local arbitration as a more feasible solution.
In a previous instance, SNGPL lost claims of Rs19 billion against NPPMCL in two arbitrations at the London Court of International Arbitrations (LCIA). The arbitrator in these cases dismissed SNGPL’s claims and directed it to reimburse NPPMCL, including interest, which totalled Rs15.3 billion. Additionally, the arbitrator rejected SNGPL’s counterclaims, including an additional claim of Rs4.38 billion, due to insufficient evidence.
The law ministry has finalized instructions for SNGPL, NPPMCPL, and Quaid-e-Azam Thermal Power Limited (QATAPL) to enter into a one-time arbitration agreement for local dispute resolution under the Arbitration Act 1940. The move aligns with Section 17(1) of the State-Owned Enterprises (Government and Operations) Act, 2023, signalling a significant shift from the current norm of international arbitration to a localized approach for SOE disputes.