The $2 Billion Smog: Why Gulf Investors Are Suing Pakistan Over K-Electric Collapse | Exclusive

Last Updated:January 23, 2026, 22:25 IST

This move is particularly damaging as it pits Islamabad against some of its most dependable economic allies in Riyadh and Kuwait City

The claim, filed on January 16 at the Permanent Court of Arbitration, marks a dramatic escalation in a decade-long dispute over K-Electric, Karachi’s primary power supplier. (Representational image: Canva)

In a significant legal blow to Pakistan’s struggling economy, a consortium of prominent Gulf investors has initiated international arbitration against the state, seeking $2 billion in damages. The claim, filed on January 16 at the Permanent Court of Arbitration, marks a dramatic escalation in a decade-long dispute over K-Electric, Karachi’s primary power supplier.

The legal action represents 32 Saudi entities—including the influential Al-Jomaih family—and five Kuwaiti firms, who collectively hold a 30.7 per cent indirect stake in the utility. This move is particularly damaging as it pits Islamabad against some of its most dependable economic allies in Riyadh and Kuwait City.

The Trigger: A Failed Chinese Exit

The roots of the crisis trace back to 2016, when the investors reached an agreement to sell their controlling interest in K-Electric to Shanghai Electric Power for $1.77 billion. According to the arbitration filing, this transaction was held in a state of administrative limbo for over eight years.

Investors allege that the Pakistani state repeatedly “changed the rules mid-game," withholding mandatory national security clearances and imposing contradictory regulatory conditions. The deal finally collapsed in late 2025 after the Chinese giant withdrew its offer, citing “changing business conditions" and a lack of predictable policy. The Gulf consortium argues this prolonged obstruction effectively amounted to an indirect expropriation of their investment.

Regulatory Drift and Financial Hostility

The arbitration notice outlines a pattern of what investors describe as “confiscatory" state behaviour:

Unpaid Subsidies: The government has reportedly failed to clear billions in tariff differential subsidies owed to K-Electric, some dating back nearly two decades.

Double Standards: While the state withheld these payments, it simultaneously imposed heavy late-payment penalties on K-Electric for its own dues.

Tariff Manipulation: In May 2025, the Electric Power Regulatory Authority (NEPRA) issued final tariff determinations. However, the government allegedly refused to formally notify these, instead reopening settled matters through “flawed review processes" that could cost the utility Rs 85 billion annually.

View from Delhi

According to top intelligence sources in New Delhi, the K-Electric dispute is being closely monitored as a barometer of Pakistan’s systemic instability. Indian agencies view the arbitration as part of a broader pattern where Pakistan’s mounting energy sector liabilities—often referred to as “circular debt"—are leading to desperate and inconsistent policy shifts.

Intelligence assessments suggest that this legal battle will severely strain Islamabad’s relationship with Gulf capitals. Analysts in Delhi believe that by undermining the confidence of Saudi and Kuwaiti investors, Pakistan is jeopardising its most critical “lifeline" for financial bailouts. The consensus amongst Indian observers is that political interference in commercial contracts has now reached a tipping point, transforming a domestic energy crisis into a high-stakes diplomatic and legal flashpoint.

News world The $2 Billion Smog: Why Gulf Investors Are Suing Pakistan Over K-Electric Collapse | Exclusive

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