ISLAMABAD: The dispute between Sui Northern Gas Pipelines Limited (SNGPL) and National Power Parks and Management Company Limited (NPPMCL), which owns RLNG-fired Government Power Plants (GPPs) has landed at the Prime Minister Office (PMO).
Gas Supply Agreements (GSAs) with the GPPs including NPPMCL were signed by SNGPL in 2016 on Firm Take or Pay basis.
Sharing the details, sources told Business Recorder SNGPL argues that NPPMCL has adjusted/set off from undisputed SNGPL invoices for gas supply a total amount of Rs. 15,507,571,502 which was awarded to NPPMCL in arbitration award on December 12, 2021.
SNGPL move to reinitiate arbitration perturbs NPPMCL
The process of enforcing foreign arbitral awards in Pakistan is to make an application to the high court under the Recognition and Enforcement Act, 2011.
The party against whom enforcement is sought has an opportunity of resisting recognition and enforcement by filing objections on various grounds stipulated in the 2011 Act. If these objections are dismissed, the court recognizes and enforces the award which then acquires the status of a decree of a Pakistan court. No court in Pakistan has recognized and enforced the LCIA Arbitration Awards dated December 12, 2021.
According to sources, the gas supply agreements between SNGPL and NPPMCL do not provide any specific right or provision to set off from undisputed invoices. NPPMCL’s unilateral action unlawfully circumvents the legal process as well as the GSAs.
In accordance with the GSAs, on August 22, 2024, SNGPL sent a notice of dispute under Section 18.1 regarding NPPMCL’s unilateral set-off/adjustment against SNGPL’s undisputed invoices. As contemplated in the GSAs, SNGPL highlighted that this is a good faith attempt to settle the dispute by way of mutual discussion within 30 days.
However, instead of engaging in good faith discussions with SNGPL, on September 18, 2024 NPPMCL denied the existence of the dispute and refused to engage in this regard.
“NPPMCL developed a completely absurd narrative that SNGPL is pursuing a matter which has already been determined. This is wrong. No forum has determined the dispute, the invoices remain payable and there is no legal/equitable/contractual right to setoff,” the sources added.
Thereafter, on September 26 2024, SNGPL once again wrote to NPPMCL stating that the 30-day period for good faith discussions has lapsed, and the parties should move forward with resolution of the dispute. SNGPL proposed a direct one-time arbitration under the Arbitration Act 1940 in order to save precious foreign exchange. This was reiterated by SNGPL in its letter of October 7, 2024.
According to SNGPL, through NPPMCL’s letter of October 8, 2024, it once again denied the existence of the dispute, adding that NPPMCL’s outright refusal to engage was simply an attempt to delay the resolution of the dispute.
“Due to NPPMCL’s failure to engage (despite SNGPL’s repeated attempts), SNGPL initiated arbitration proceedings on October 15, 2024 in accordance with Section 18.3 of the GSAs in order to save its claims from becoming time-barred owing to limitation issue,” the sources quoted SNGPL as saying.
SNGPL, in its letter of October 17, 2024 requested the Petroleum Division to take up the matter with SIFC for advice regarding resolution of disputes through local arbitration or to proceed per GSA due to refusal by NPPMCL.
However, SNGPL has shown its willingness to settle the dispute locally subject to consent of NPPMCL which is still awaited.
On the other hand, NPPMCL has claimed that it had entered into GSA with SNGPL for both the Balloki Power Plant and the Haveli Bahadur Shah Power Plant on October 29, 2016. In June 2018, SNGPL made an illegal drawdown of Rs. 10,384,149,401 from the gas supply deposits under the GSA. Its purported claims for loss/tariff differential were referred to an Arbitral Tribunal of the London Court of International Arbitration (LCIA) in terms of the GSA.
Lengthy and comprehensive proceedings took place before the Arbitral Tribunal, culminating in two final and binding awards by the Arbitral Tribunal dated December 12, 2021, one for Balloki Power Plant and one for Haveli Bahadur Shah Power Plant.
Both Awards were in favour of NPPMCL, and against SNGPL. Among other things, the Arbitral Tribunal held that SNGPL’s drawdown was illegal and unlawful, and it was not entitled to those amounts, which were to be returned along with interest at the ‘delayed payment rate’.
Under Section 18.3 of the GSA, “every Award shall be final and binding on the parties. The parties undertake to carry out the award immediately and without any delay.”
Similarly, the LCIA Rules governing the proceedings also provide the same. Therefore, in order to give effect to the same, NPPMCL adjusted the amount due pursuant to the Awards on December 15, 2021 (Rs. 15,507,571,502 as on that date) against certain invoices of SNGPL.
For sake of completeness, PPMCL also pointed out that despite the clear and unequivocal Awards, SNGPL challenged the same before the English High Court.
SNGPL’s appeals also failed, and the English High Court in its judgment of February 15, 2023 upheld the Awards. No further challenge was made with respect to the Awards. Throughout these proceedings, including before the LCIA and the English High Court, significant costs were incurred, and SNGPL was held liable to pay the same too.
NPPMCL further stated that the LCIA Awards were given in 2021. The English High Court judgment was also passed in February 2023. The effect of these have also been acknowledged and accepted by SNGPL, in its books of accounts. Therefore, there is no dispute in this respect between the parties.
According to NPPMCL, for inexplicable reasons, after the passage of almost three years, SNGPL recently started communications with NPPMCL again, seeking to initiate fresh dispute proceedings with respect to its invoices against which the Awards amount had been adjusted in December 2021. NPPMCL has maintained its position that this is a futile attempt to re-open settled matters, as payments from one party to the other had been settled without any loss to either party.
On SNGPL’s invitation, the parties also recently met with respect to the matter on October 4, 2024. NPPMCL reiterated the existing position to which SNGPL had no answer, save for SNGPL stating that it had some concerns with respect to computation of mark-up by NPPMCL.
This process was also duly explained by NPPMCL to SNGPL. In good faith and keeping in view that both parties are Federal entities, NPPMCL further openly offered SNGPL to share its rationale and basis of this difference of mark-up, which the parties could mutually discuss and finalize on reasonable and commercial basis.
It was also NPPMCL’s understanding that such working would be shared so that if there was any mathematical difference between the parties, it could be resolved amicably.
However, much to NPPMCL’s surprise, SNGPL instead wrote to NPPMCL on the same day, reiterating its intent to initiate arbitration proceedings and asking NPPMCL to respond within one day (which NPPMCL did, asking SNGPL again not to drag two Federal entities into protracted and frivolous proceedings once again). But despite the foregoing, on October 15, 2024, it so transpired that SNGPL filed two Requests for Arbitration (‘RFAs’) before LCIA on the same matter, commencing international arbitration proceedings.
Following from this, LCIA is now asking the parties to address various points, including making immediate initial deposits to it for the arbitration proceedings.
Accordingly, NPPMCL has written a letter to Power Division. Being dragged once again into misplaced litigation, NPPMCL would have no option but to fully and forcefully defend its position. SNGPL’s actions are not only leading to further proceedings between two Federal entities housed under the same Ministry, but are also contrary to its own position in its books of accounts and before OGRA.
Moreover, under the final and binding Awards, SNGPL admittedly was held liable to pay the awarded amount, including markup, of Rs 15,507,571,502.
The amount, lying in NPPMCL accounts, was illegally and unlawfully taken by SNGPL. Further, SNGPL continued to hold and use this money for a period of almost 3.5 years (i.e., from June 2018 to December 2021) till the time the Awards were issued in December 2021 and the adjustment/set-off was made by NPPMCL. The amount is related to an award that has been settled with invoices of an equivalent amount.
NPPMCL is of the view that for the sake of argument, even if SNGPL was successful, the end result would be that SNGPL would be liable to pay the LCIA award amount, and NPPMCL would then be settling invoices of an equivalent amount as and when SNGPL paid it.
Any mark-up would also have continued, at the same rate, for both amounts. The net effect would be that the parties would be in the same position that they are today. There is absolutely no commercial rationale or basis for such an exercise, particularly between two Federal entities.
“NPPMCL has remained willing to resolve any arithmetical differences between the parties on a reasonable and commercial basis keeping in view the facts and circumstances of the matter,” said the Chief Legal Officer NPPMCL, requesting Power Division to review the matter and take it up at the Ministry level.
If SNGPL continues to assert such frivolous and misplaced claims, which are absolutely unauthorized in view of its own acceptance of the Awards in its books, NPPMCL will be constrained to exercise all rights available to it.
The process will not only lead to additional rounds of significant costs, but will also continue to cast doubts over SNGPL’s intention vis-à-vis the contractual relationship with NPPMCL.
Copyright Business Recorder, 2025
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