Govt seeks out-of-court settlement with Star Hydropower Project to avoid arbitration: report

The federal government is considering an out-of-court settlement with the Star Hydropower Project to resolve an ongoing dispute, which led to arbitration proceedings at the London Court of International Arbitration in October 2024, Business Recorder reported, citing sources from the Finance Ministry. 

The matter was discussed during Finance Minister Senator Muhammad Aurangzeb’s visit to the Multilateral Investment Guarantee Agency (MIGA) in April 2025. Hiroshi Matano, Executive Vice President of MIGA, stressed the need to resolve the issue through negotiation.

The Star Hydropower Project, a 147 MW run-of-the-river plant situated on the Kunhar River, operates under a 30-year Build-Own-Operate-Transfer (BOOT) model. MIGA, part of the World Bank Group, has provided a political risk guarantee to South Korean investor KDS Hydro Pte. Ltd. against potential contract breaches by Pakistan.

As per the reports, the Finance Ministry has convened a high-level meeting to explore a potential settlement and avoid further legal complications.

In April 2024, an arbitration award was issued in favor of Star Hydro under the MIGA-backed Government of Pakistan (GoP) guarantee. Pakistan was given three weeks from April 17, 2024, to meet its payment obligations. If the payments are not made, the investor may pursue enforcement proceedings, and if those fail, MIGA’s guarantee holder could file a claim for breach of contract.

The dispute arose in September 2022 when Star Hydro initiated arbitration after the National Transmission and Despatch Company (NTDC) refused to honor a prior arbitration award that directed NTDC to pay for delays in the project’s commercial operation. The amounts due include Rs. 2.02 billion in delay-related invoices, $16.45 million in principal damages, $2.73 million in legal costs, and £51,180 in arbitration costs, which remain unpaid.

Pakistan is obligated to pay these amounts under the MIGA guarantee. If the country fails to make the payments within 180 days, MIGA will be required to compensate the investor, creating a potential international obligation for Pakistan. This would mark the first time MIGA has paid a claim under its breach of contract coverage, which could have significant financial and diplomatic consequences for Pakistan. The Finance Ministry is thus considering a negotiated resolution to avoid these long-term impacts.