National Grid to sue Pakistan over cancelled contract

National Grid yesterday became the latest privatised utility to suffer an embarrassing setback to its overseas ambitions, revealing that a project to build, own and operate a pounds 400m power transmission network in Pakistan had been unexpectedly cancelled by the country's new administration.

The Grid, which runs the trunk power transmission network in England and Wales, said it was suing the Pakistan government for at least $21m (pounds 13m), after it refused to extend a letter of support guaranteeing the project. The letter expired on 31 March, before the Grid's consortium had completed moves to finance the venture and sign contracts.

Like other utility companies the Grid had apparently been the victim of overseas politics. The contract was awarded two years ago by the government of Benazir Bhutto's People's Party. Late last year Mrs Bhutto was ousted after charges of mass corruption were made against her administration and was replaced as prime minster by Nawaz Sharif.

The legal claim is for compensation to cover the first stages of arranging the project including paying expenses of contractors and developers. The Grid said its share of the claim was for $2.4m for the last financial year.

A Grid spokesman yesterday put a brave face on the news. He said: "The door isn't closed completely. We hope we can reach an amicable solution to this." Privately, though, the company is thought to have accepted its chances of winning business in Pakistan are "dead and buried".

Though the total sums involved are small in relation to the Grid's earnings, the news means a potentially lucrative opportunity for the group to use its expertise to expand abroad has been lost. The Grid's other foreign projects include planning a transmission system in Argentina, along with activities in India and the Philippines.

The Pakistan project was to build a 1,400km cable from the northern capital, Lahore, to Jam Shoro in the south. Work was to be carried out by Balfour Beatty with equipment supplied by Reyrolle, a subsidiary of Rolls-Royce. The Grid had claimed it would complete two-thirds of the work by December 1997, though the timetable had already slipped behind schedule.

The wave of utility privatisation in the fast growing economies of Asia and Latin America have attracted many UK utilities, with mixed success. Earlier this month Anglian Water said it would have to set aside pounds 15m to cover losses on foreign contracts, including Brazil where the group is embroiled in legal action. Unexpected problems to a sewerage project in Thailand have cost United Utilities pounds 83m, while Thames Water last year pulled out of non-regulated contracting operations at a cost of pounds 95m.

Grid shares fell 1p to 215.5p.

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