ISLAMABAD: A shareholder from the United Kingdom of the company Progas Pakistan has initiated international arbitration proceedings of $573 million against Pakistan for alleged expropriation of its LPG infrastructure in Karachi and the government has decided to vigorously contest the case.

Pakistan has appointed the Allen & Ivery law firm of the UK and Advocate Miangul Hasan Aurangzeb of the Supreme Court to defend the case before a tribunal of the International Centre for Settlement of Investment Disputes (ICSID) under the arbitration rules of the United Nations Commission on International Trade Law (UNCITRAL).

The government has contended that the case is frivolous and built on the basis of general statements of ministers instead of legal documents and agreements.

In one case, the foreign shareholders of Progas, led by Ali Allawi of the UK, quoted a November 1996 statement of Azam Khan Hoti as that of a federal minister even though he became a minister about five months later.

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

It said the Progas had failed because of its fundamentally flawed business model and the government had no role in this failure because the LPG was a deregulated sector. Since the claimant had raised the legal dispute under an agreement between the governments of Pakistan and the UK but he was not an investor in Pakistan, the tribunal lacked the jurisdiction to hear the claim, the government said.

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

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

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

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