ISLAMABAD: An international arbitration into a $573 million claim against Pakistan has begun in London under the International Centre for Settlement of Investment Disputes (ICSID).

The claim has been filed in the ICSID by a UK-based shareholder of Progas Pakistan Limited, a company now acquired by the Sui Southern Gas Company (SSGC), against Pakistan for alleged expropriation of its LPG infrastructure in Karachi.

Pakistan believes that the case is frivolous, based on hearsay and legally very weak and has decided to vigorously contest it. The government had two years ago appointed Allen & Ivery LLP, a UK-based law firm, and Supreme Court’s lawyer Mian Gul Hassan Aurangzeb to defend the case before the ICSID tribunal under arbitration rules of the United Nations Commission on International Trade Law.

The petroleum ministry has sent a three-member team to assist the legal team for about three weeks. The team comprises additional petroleum secretary Naeem Malik, Mari Gas official Hassan Mahmood and lawyer Bismillah Rai.

Mr Malik was suspended by the prime minister last month after an inquiry committee found him responsible for the recent petrol crisis.

The government has contended that the claim was frivolous to the extent of building a case on general statement of ministers instead of legal documents and agreements. In one case, foreign shareholders of Progas, led by Ali Allawi of the UK, quoted a Nov 1996 statement of Azam Khan Hoti as federal minister, although he became minister about five months later.

Islamabad believes the case is frivolous and has decided to vigorously contest it

The government has informed the tribunal that Mr Allawi claimed to have suffered as an alleged investor in Progas whose LPG import and trading business had failed, but there was no evidence that he was an investor in Pakistan.

It said the Progas business had failed because of its fundamentally flawed model and the government had no role whatsoever in this failure because LPG business was a totally deregulated sector.

Since the claimant has raised legal dispute under an agreement between the governments of UK and Pakistan on promotion and protection of investments and was not an investor in Pakistan, the tribunal lacked the jurisdiction to hear the claim.

The government argued that the case was an attempt to make Pakistani taxpayers to underwrite and pay for the misguided and short-sighted business aspirations of a private venture. It said the claim had failed to even mention how much investment Mr Allawi had made in Pakistan despite seeking compensation for losses suffered here.

The claimant has also failed to establish that he has even become an indirect shareholder and how the company made transactions that caused losses to the overall venture. Moreover, the statements attributed to former petroleum and natural resources minister Usman Aminuddin and former prime minister and finance minister Shaukat Aziz for making commitment to investors had also been denied by them.

The government contended that general statements made by political leaders or ministers could not become the basis of legal business transactions that are based on binding contracts, agreements and other legal matters.

Moreover, it said, since a majority of shareholders of Progas had reached an amicable business deal with a public sector company (SSGC) for transfer of its terminal infrastructure, the protection of the treaty did not extend indirect investments as allegedly made by the claimant.

“The government has been paying fees to lawyers and other expenses for the arbitration for almost two years out of a training fund, but formal arbitration proceedings have started now,” an official said.

He added that the use of training fund to fight a case of a commercial entity, although with majority shareholding of the government, would raise audit objection because of its irregular use.

The fund, under rules, is reserved for training, research and acquisition of expertise for professionals of DGPC which deals with exploration and development of oil and gas in the country. The rules have been relaxed to empower the petroleum secretary to use the fund for training of other officials of the oil and gas sector.

A senior official, however, said the petroleum secretary, as principal accounting officer, had approved and authorised the payment of charges for litigation and international arbitration from the training fund.

Documents suggest that until May last year the petroleum secretary had approved a payment of 3.4 million pounds sterling to Allen & Ivery, followed by $1.62m to BRG of the UK and the court of arbitration as legal fee.

Another Rs7.8m was paid to advocate Mian Gul Hassan.

Sources said the litigation expenses should have been borne by the SSGC as it had acquired LPG firm Progas. The SSGC board had resolved to shoulder the cost, but a retired legal director persuaded the government to take things under its control.

Published in Dawn February 26th , 2015

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