In a significant development in the energy sector, Roula Khalaf, Editor of the Financial Times, highlights the ongoing competition between Saudi Arabian and Pakistani investors for control of K-Electric, one of Pakistan's largest power companies. This struggle has far-reaching implications, potentially jeopardizing not only the ongoing reforms of K-Electric but also broader Saudi investments in a nation that is in desperate need of foreign capital.

The conflict centers on Al Jomaih Power, a prominent Saudi company that, along with Kuwaiti fund Denham Investment, acquired a stake in K-Electric during its privatization process in 2005. They are now in a contentious battle against Shaheryar Chishty and his firm, AsiaPak Investments, which purchased a stake from the liquidator of the collapsed private equity firm Abraaj three years ago. This situation underscores a complex web of investment and governance issues that are critical to the future of Pakistans energy landscape.

According to documents from the Cayman Islands court, the Gulf investors, led by Al Jomaih, are maneuvering to prevent Chishty and his associates from gaining seats on K-Electrics board. They argue that the sale facilitated by the liquidator breaches a pre-existing shareholder agreement and contravenes various Pakistani rules regarding disclosure and security clearance. This legal contention is more than a simple corporate disagreement; it poses a threat to K-Electrics ambitious $2 billion reform plan, as expressed by various executives, shareholders, and analysts familiar with the situation.

The stakes are particularly high for Pakistan, as the government is eager to attract more Gulf investment at a time when economic stability is crucial. A powerful military-backed investment vehicle, known as the Special Investment Facilitation Council (SIFC), has been actively engaging both parties in discussions regarding a potential resolution that could see one side buy out the others stake. Sarfaraz Ahmed, a lieutenant general and national coordinator for the SIFC, has been involved in talks with both factions, emphasizing the urgency of the matter.

In a revealing statement from Shan Ashary, who represents Al Jomaih on K-Electrics board, he mentioned that while the SIFC indicated that the shareholder disputes were not their immediate concern, they also urged the parties to reach a resolution. Saudi authorities are aware of long-standing issues at the company, Ashary noted, adding that the situation is being monitored closely as it impacts the overall sentiment of Saudi investors towards Pakistan.

The roots of this dispute can be traced back to 2022, when Chishty, who previously worked in banking in Hong Kong, emerged as the largest limited partner in KES Power, a Cayman Islands-based fund that holds a significant 66.4 percent stake in K-Electric. In response, Al Jomaih, along with its partner Denham, successfully obtained a stay order preventing any changes to K-Electrics board, and as the current boards term nears its end, the company faces increasing pressure to appoint new members.

The Gulf investors have big egos and lots of clout in Pakistan, commented a source close to the Al Jomaih family. The sentiment reflects the deep-seated complexities and high stakes involved in this corporate drama, emphasizing the commitment from the Al Jomaih family to pursue this matter rigorously over the long term.

In court documents, Chishty and his partners have argued that Al Jomaih and Denham themselves have violated the shareholder agreement by continuing proceedings in Pakistan despite a court ruling that establishes exclusive jurisdiction in the Cayman Islands. They further contended that it was highly inappropriate to insinuate that their acquisition was lacking in transparency.

This dispute is emblematic of the broader challenges associated with privatizing critical sectors in Pakistan, particularly in a country where energy infrastructure is essential for economic growth. The private equity firm Abraaj invested $360 million in K-Electric back in 2008, significantly reducing transmission and distribution losses to 15.3 percent, thereby facilitating power generation that could keep pace with Karachis rapidly growing population. However, following Abraaj's collapse, the ownership structure has become muddled, leading to a governance crisis that has left K-Electric in a precarious position.

Experts, including Ammar Habib Khan, a professor at the Karachi-based Institute for Business Administration, have pointed out that K-Electric now represents the antithesis of the privatization initiative that was intended to enhance governance and efficiency in the energy sector. We are stuck at an impasse, Khan remarked, highlighting the urgency of resolving these ownership issues to unlock K-Electrics potential.

Shareholders and executive members have raised alarms that this ongoing dispute could jeopardize efforts to secure the $2 billion necessary to enhance renewable energy capacity and mitigate transmission and distribution losses. Ashary has cautioned that if the shareholder disputes remain unresolved, it will pose significant challenges for international financing efforts.

Chishty expressed frustration over the uncertainty, stating, No one wants to invest in a company with no plan. Conversely, K-Electrics spokesperson, Imran Rana, firmly stated that the company categorically rejects the allegations suggesting that the ongoing shareholder litigation and the three vacant board positions are impeding the utilitys core operations. He noted that despite the stay order, K-Electrics board has managed to approve plans for a $2 billion overhaul of its transmission and distribution systems, alongside a new generation tariff that received approval from Pakistans electricity regulator in October.

As the situation unfolds, both the SIFC and Al Jomaih Holding Company, based in Saudi Arabia, have remained tight-lipped, failing to respond to inquiries seeking clarification on their positions. Observers have noted that while the legal disputes may not offer a straightforward resolution, it appears that significant differences exist between the parties that may ultimately necessitate a buyout of one faction by the other.