Prime Minister Imran Khan is to seek Turkish political leadership's help for a possible out-of-court settlement with M/s Karkey Karadeniz Elektrik Uretim which has filed arbitration claims against the government of Pakistan in different countries, well-informed sources told Business Recorder. The Prime Minister is scheduled to undertake a two-day (2-4 January 2019) visit to Turkey wherein he would hold meetings with Turkish Prime Minister and Turkish President, besides delegation level meetings.
The sources said, the Prime Minister will take up the issue of Turkish company M/s Karkey in addition to finalization of Free Trade Agreement (FTA) which is "on ice" due to differences between the two countries. "Pakistan's defeat in Karkey case in the ICSID in London has placed an unprecedented amount of pressure on the government," said an official of Power Division after spending about Rs 1 billion on the case. The Power Division has sought $ 1.35 million from Finance Ministry to contest the case against Turkish firm M/s Karkey, saying that Pakistan's assets abroad are potentially under threat of being attached (or lien being created) that will have huge financial implications. M/s Karkey, which set up a 232MW ship mounted rental power project pursuant to rental power policy 2008, announced by the government of Pakistan (GoP) entered into rental services contract (RSC) on April 23, 2009 for generation of electric power with the Lakhra Power Generation Company Limited (LPGCL).
Pursuant to the terms of the RSC, the GoP issued sovereign guarantee to secure payment obligations of LPGCL. M/s Karkey achieved commercial operations in April, 2011. In the meanwhile, the Supreme Court in exercise of its original jurisdiction initiated a suo motu proceedings against the rental power projects (RPPs) and through its detailed judgment of March 30, 2012, declared all the RSCs void, ab initio, being illegal and against public policy.
Supreme Court also directed National Accountability Bureau (NAB) to carry out an investigation under the NAB Ordinance 1999. In the light of judgment of the Supreme Court, NAB commenced investigation and placed caution on M/s Karkey ships restraining them from leaving territorial waters of Pakistan. M/s Karkey, filed arbitration claim against the GoP, for various breaches, unilateral termination of the RSC and detention of its ships, before the International Center for Settlement of Investment Disputes (ICSID) under Pakistan- Turkey Bilateral Investment Treaty (BIT), 1995.
According to the official, proceedings before ICSID were held between March 23 and March 26, 2018. On August 22, 2018, the ICSID awarded against GoP an amount of $ 760 million along with interest totaling to Rs $846 million.
After the award, Karkey has gone into enforcement of arbitration award against Pakistan in various jurisdictions including the USA, UK, Germany and France. With this action government of Pakistan's assets abroad are at potential threat of being attached or lien being created on them and will result in huge financial implications.
Attorney General Office informed the Power Division to arrange funds to the tune of $ 1.37 million, out of which US$ 0.395 million is advance payment on urgent basis, to engage counsel to initiate various initiatives/remedies including revision, reviews, defense of the enforcement proceedings etc, to be initiated, reviewed and completed on a critical time line.
The Power Division requested the ECC for approval of supplementary grant for $ 1.37 million. The ECC considered the summary submitted by the Power Division regarding Supplementary Grant and recommended placement of the case of Supplementary Grant before the Federal Cabinet for consideration and approval.
President Alvi during his visit in to Turkey in October 2018 held a meeting with the Turkish President Recep Tayyip Erdogan and the latter highlighted the Karkey case and "problems" being faced by M/s Zorlu Solar Pakistan (Pvt) Ltd operating in Pakistan. The management of M/s Zorlu, President Alvi was informed, was concerned over the change in tariff policy by the Government of Pakistan which changed the cost of its initial investments as per its contractual obligations.
Former Prime Minister, Nawaz Sharif had also raised these issues with Turkey could not find an amicable resolution.
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