ISLAMABAD: An English court has upheld about Rs24 billion ($88 million) arbitration award of the London Court of International Arbitration (LCIA) against Sui Northern Gas Pipelines Limited (SNGPL) and in favour of another state-owned entity, the National Power Parks Management Company Ltd (NPPMCL).

The two state-run companies, operating under the Ministry of Energy, have been fighting a legal battle in British courts for more than three years. The SNGPL operates under the energy ministry’s petroleum division, while the NPPMCL under its power division.

Both companies have been paying in foreign currencies the court fees, counsel’s charges and other legal expenses besides travel, lodging and joyrides of their respective official teams in the United Kingdom.

The dispute pertains to the supply of liquefied natural gas (LNG) by the SNGPL to the NPPMCL for its two power plants during the course of delayed commercial operations. The projects include the Haveli Bahadur Shah plant in Jhang, and the Balloki plant in Sheikhupura, which have a combined power generation capacity of over 2,400 megawatts.

Two govt firms operating under same ministry fighting legal battle in British courts for years

The Ministry of Energy’s power and petroleum divisions, and the Ministry of Finance could not settle their internal disputes during the PTI’s government owing to inter-ministerial infighting.

This led the matter in October 2019 to land in the LCIA, whose jurisdiction had been made part of the gas sales and

purchase agreements between the SNGPL and NPPMCL’s plants for dispute settlement to ensure privatisation of the power plants sometimes in future. The privatisation could not take place, but the commercial dispute landed in London courts.

Originally, the PMLN government had envisaged a minimum of 66 per cent of LNG supplies to power plants under the take-or-pay principle. This meant the power plants were required to pay for at least 66pc gas even if they were unable to take those quantities. The SNGPL raised invoices against this clause.

Last year, the LCIA had concluded an arbitration award against the SNGPL and in favour of the NPPMCL, but the SNGPL challenged the decision in the London High Court, which dismissed the SNGPL’s request while upholding the LCIA award. The court ruled that SNGPL’s challenge was based on a misunderstanding of the arbitration award.

Officials said the disputes arose when the SNGPL in May 2018 raised take-or-pay invoices against the NPPMCL and subsequently proceeded to recover Rs10.37bn from the gas supply deposit maintained by the NPPMCL under its gas supply agreements.

The LCIA issued its final awards last year on these disputes and held that the SNGPL wrongly drew down the amount of around Rs10.37bn and directed the SNGPL to pay the same to the NPPMCL with 2pc interest rate on top of the Karachi Interbank Offered Rate (Kibor) from the date of recovery until full payment. The final amount went beyond Rs23bn.

SNGPL sources said it had won an identical award from the LCIA against Quaid-i-Azam Power Parks Company Ltd (QAPPCL) of the same commercial questions, but strangely two contradictory awards had come out from the same forum.

That award was later challenged by the QAPPCL in the London High Court but its outcome is pending. Both cases could net off financial impact.

In a written statement, the SNGPL said it had challenged two arbitration awards of the LCIA. This involved “disputes under gas sales agreements that the SNGPL has with NPPMCL, a company wholly owned by the federal government. SNGPL’s challenge to the awards has been dismissed”, it said but added that the English High Court held that part of the award manifested a degree of confusion.

“The court also decided that the parties were proceeding on a false premise, and in fact both SNGPL and NPPMCL were in agreement about the particular point of interpretation of the relevant gas sale agreements, which formed one of the grounds of challenge,” the SNGPL said, adding that it was consulting lawyers on the matter and would decide what action to take to protect its interests.

The SNGPL said that under the terms of the licence granted to the SNGPL by the Oil and Gas Regulatory Authority read with a May 2018 decision of the cabinet’s Economic Coordination Committee and in line with the tariff regime in vogue, including regulatory practices, the SNGPL would take up the matter with the regulator for determining the impact of the awards on the company’s revenue requirements.

“Since the relevant awards relate to take-or-pay transactions, which were earlier offered to the regulator as operating, therefore, the reversal of the same is not expected to have any material adverse impact on the profitability of the company,” the SNGPL said. “However, the final outcome of the same will depend on the determination by the regulator.”

Published in Dawn, February 27th, 2023