Government wants SOE disputes to be resolved through local arbitration

A view of an SSGC van parked outside its headquarters in Karachi.  - SSGC
A view of an SSGC van parked outside its headquarters in Karachi. – SSGC
  • The SOE Act, 2023 will be amended to make local arbitration mandatory.
  • SIFC wants public sector organizations to address issues at the local level.
  • SNGPL had expressed its intention to go to the international platform.

ISLAMABAD: The government wants all state-owned enterprises (SOEs) to resolve their disputes through local arbitration rather than international. news Reported on Monday.

These entities will be directed to include all local arbitration clauses in their manual agreements, except in the case of international entities.

A senior ministry official said the State-Owned Enterprises (Government and Operation) Act, 2023, will be amended to make it mandatory for local arbitration between domestic SOEs and international arbitration, which is allowed only in agreements with foreign entities. Acceptable with prior permission. The publication of Law and Justice reported.

Earlier, the Special Investment Facility Council (SIFC) had asked the Law Ministry not to allow public sector entities to approach international arbitration to resolve their disputes.

A dispute worth Rs 14 billion had come to light between Sui Northern Gas Pipeline Limited (SNGPL) and National Power Parks Management Company (NPPMC).

On August 7 this year, Sui Northern informed NPPMCL about its intention to move international arbitration to recover the balance amount of Rs 14.6 billion under its take or pay invoices for 2020 and 2021. The issue attracted the attention of SIFC, and then the apex decision-making forum asked the ministry to amend the SOE Act and stop the two entities from going to international arbitration.

The Law Ministry has finalized the instructions to be issued to SNGPL, NPPMCPL and Quaid-e-Azam Thermal Power Limited (QATAPL) to enter into lump sum arbitration agreement under the Local Arbitration and Mediation Act 1940, as done May go. Under Section 17(1) of the State Owned Enterprises (Government and Operations) Act, 2023.

Presently, the said institutions have a forum for international arbitration in case of disputes as per the agreements made between them.

Since all three entities are state-owned, the federal government cannot pay the fine in foreign currency. It wants that resolution of SOE disputes should be achieved through local arbitration.

Earlier in 2021, SNGPL had lost its claims worth Rs 19 billion against NPPMCL in two arbitrations before the London Court of International Arbitration (LCIA).

NPPMCL owns and operates two 1,200 MW RLNG-based power plants located at Haveli Bahadur Shah (Jhang) and Balloki, (Shekhupura) in Punjab, and purchases RLNG for power generation from SNGPL.

The disputes came to light in May 2018 when SNGPL issued take or pay challan against NPPMCL and recovered Rs 10.37 billion from the gas supply deposits maintained by NPPMCL under its gas supply agreements. Disputing the claims of SNGPL, NPPMCL contested the claims of SNGPL on several forums and ultimately referred the disputes to LCIA for final resolution.

The sole arbitrator issued his final award related to these disputes earlier this week, deeming the documents submitted by SNGPL in support of its claims as “little more than self-serving evidence”.

The arbitrator also held that SNGPL wrongly recovered the amount of Rs 10.37 billion and directed the same to be paid to NPPMCL along with interest from the date of recovery till full payment, amounting to Rs 15.3 billion.

Further, the arbitrator rejected the counterclaim raised by SNGPL against NPPMCL, which included an additional claim of Rs 4.38 billion. It said SNGPL had failed to discharge “its burden of proving its quantum”.

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