Arbitration challenge

How does Pakistan perform in international courts of justice? The answer is: it doesn't perform well. At least two cases strongly reflect successive Pakistani governments' approach to global litigation.

The first case relates to Tethyan Copper Company engaged over a decade back to mine copper and gold deposits at Balochistan's Reko Diq situated at the foot of an extinct volcano near Pakistan's frontier with Iran and Afghanistan. The deposit was set to rank among the world's biggest untapped copper and gold mines.

The World Bank's International Centre for Settlement of Investment Disputes (ICSID) ruled against Pakistan in 2017 and has ordered the Pakistani government to pay damages of $5.8 billion to Tethyan Copper - a joint venture between Chile's Antofagasta Plc (ANTO.L) and Canada's Barrick Gold.

The company is said to have invested more than $220 million by the time Pakistan's government, in 2011, refused to grant them the mining lease needed to keep operating. In accordance with terms of agreement, the case was escalated to the World Bank for arbitration.

The other case relates to Karkey Rental Power plant. In this case, too, the ICSID of the World Bank, in September 2017, asked Pakistan to pay worth $760 million plus interest (total $ 1.2 billion) to the Turkish ship-based energy firm, Karkey Karadeniz Elektrik Uretim as penalty, following the latter's move to register arbitration claims against Pakistan under a bilateral investment treaty (BIT) in 2013 for a contract worth $564.6 million for a five-year period to act up rental power plants in Karachi. It has been reported that Pakistan had offered in March 2017 to pay Rs 700-million compensation to Karkey through the Turkish government.

Lately, the PTI government through the intervention of Prime Minister Imran Khan and President Tayyib Erdogan, has amicably resolved the Karkey dispute and is reported to have saved USD 1.2 billion penalty imposed by ICSID."

In both the cases, gross irregularities and elements of corruption were detected and the contracts had been ultimately struck down by the Supreme Court of Pakistan. These cases are still under active investigation of National Accountability Bureau (NAB) for corruption.

Surprisingly, the World Bank's ICSID did not give any weight to the judgements of the apex court of Pakistan nor did it take into due consideration the aspect of irregularities and corruption, although international laws of jurisprudence are quite sensitive and vocal about corruption and so are the rules of the World Bank.

Just the two of the above judgements mean for Pakistan a slap of $ 7 billion, which if implemented, could lead to its bankruptcy or a total collapse of its social sector programmes.

Likewise, there are a number of cases related to Independent Power Producers (IPPs) in Pakistan. The IPPs have taken the similar path for arbitration, achieving similar results. One such case is related Hubco Power Plant, which was financed and structured by the World Bank as the first IPP in Pakistan.

The whole process of the said arbitration and quantum of damages levied are intriguing. It has been very well investigated and summed by Jeffrey D. Sachs in his column of November 26, 2019, published in a leading international publication.

Sachs is a renowned writer, professor and Sustainable Development Goals Advocate for United Nations Secretary-General António Guterres.

The following are excerpts from his write-up:

"Wall Street hedge funds and lawyers have turned an arcane procedure of international treaties into a money machine, at the cost of the world's poorest people.

"The latest shakedown is a $5.9 billion award against Pakistan's government in favour of two global mining companies - Antofagasta PLC of Chile and Barrick Gold Corporation of Canada - for a project that was never approved by Pakistan and never carried out."

In his analysis, Sachs raises some serious questions on the credibility of ICSID proceedings.

He argues that "The Supreme Court's decision came after years of public-interest litigation challenging the deal for violations of domestic law and the rights of the public. In the meantime, the BDA's chairman was found to have conflicts of interest and to be living beyond the means afforded by his official salary, which in the court's words was tantamount to corruption. In a normal world, the court's judgement would be respected absent proven evidence of corruption or other wrongdoing against the justices. But in the world we actually inhabit, the so-called international rule of law enables rich companies to exploit poor countries with impunity and disregard their laws and courts."

Sacks adds "When TCC lost its case in Pakistan's Supreme Court, it simply turned to the World Bank's International Centre for the Settlement of Investment Disputes (ICSID), in complete disregard of Pakistan's laws and institutions. A panel of three arbitrators with no expertise in or respect for Pakistan's legal system ruled that TCC deserved compensation for all future profits that it allegedly would have earned if the non-existent project, based on a voided agreement, had gone forward."

In this writer's view, the ICSID verdicts in the Reko Diq and Karkey rental power cases show the failure of the court to attain the ends of justice.

The World Bank, which is perceived as a global entity to help out the poor nations in their fight against poverty, health care and education needs to redeem its credentials as such.

On the other hand, Pakistan needs to develop expertise to match with that of international experts in terms of contract formulation, negotiation and arbitration. Presently, it is extremely poor when benchmarked at international levels. Also, Pakistan simply has no expertise on claim management which is a key to the whole process. The country needs to overcome this and similar challenges with a view to competing in a global business environment which is unfortunately characterised by deceit and guile.

(The writer is the former President of Overseas Investors Chambers of Commerce and Industry)

Copyright Business Recorder, 2019