Reneging on bilateral treaties and/or on signed contracts by Pakistan (as opposed to a memorandum of understanding which is not legally binding) has opened the doors to litigation in several relevant international fora including the International Centre for Settlement and Investment (ICSID) of the World Bank Group, and the London Court of International Arbitration (LCIA); and in most cases Pakistan has suffered a costly defeat in terms of penalties.
Independent experts, approved by the two litigants, ruled in favour of India on two hydro projects notably Kishanganga and Baghlihar dams with Pakistan's stance being that their construction was violative of the World Bank brokered 1960 Indus Water Treaty (IWT). Some minor modifications/specifications proposed by Pakistan were addressed in the verdict prompting Pakistani officialdom to claim success; however independent analysts expressed concern that these two rulings in India's favour would enable India to proceed with other projects in the region that involve waters granted to Pakistan under the IWT. A leaked letter written by Pakistan's High Commissioner to India to the Ministry of Water Resources in January 2018 warned that New Delhi is strategizing to build six new dams on river Chenab to generate 6322 MW electricity and store water destined for the lower riparian Pakistan including Sawalkot (1,856MW), Kirthai-1 (390MW, Kirthai II (930MW), Pakal Dal (1,000MW), Kwar (540MW), Kiru (624MW) and Bursar (800MW) in the Chenab basin and Ujh project (212MW) in the Ravi basin. In other words, the fallout of the two rulings is not over and one would hope that our Law Ministry is not only aware but prepared to take appropriate timely mitigating measures in the event of any further development by India in this regard instead of its continued overwhelming focus on domestic issues.
On 17 September 2020, the ICSID uploaded the following on its website: "the ad hoc committee issues a decision on the termination of the stay on enforcement of the award" - the award in question being 5.97 billion dollars (0.3 billion dollars less than the loan procured from the International Monetary Fund in July 2019) against Pakistan on 12 July 2019 for denying the mining lease to the Australian company Tethyan Copper Company (TTC)." The hearing of the case on merit has yet to begin so stated a member of the Attorney General's Office to Business Recorder, adding that at the appellate forum grant of stay as interim relief on the request of a claimant after he meets basic requirements is standard normal practice as in the case of local courts. The sequence of events to stay the payment of penalty is as follows: (i) filing an application by the government of Pakistan for the annulment of the award on 18 November 2019, to which TTC responded on 11 February 2020; (ii) Pakistan filed an observation on TTC's response on 8 April 2020 to which TTC responded on 14 April 2020; (iii) Pakistan filed on 17 April a reply on the TTC request to terminate the stay of enforcement of the award; (iv) the ad hoc committee was established on 25 March 2020 and held the first session and a hearing on the stay of enforcement on 29 April 2020; and (v) on 26 June Pakistan filed a request to decide on the admissibility of new evidence to which TTC filed its observations on 10 July 2020 which led to the grant of stay on 17 September 2020.
The 12 July 2019 ICSID decision is at odds with the January 2013 verdict by the three judge bench of the Supreme Court of Pakistan headed by the then Chief Justice Iftekhar Muhammad Chaudhary that the agreement dated 23 January 1993 was in conflict with the laws of the land. TTC filed for arbitration on 12 January 2012 when the Zardari-led government was in power.
Karkey Karadeniz was awarded 490.4 million dollars against Pakistan, for claims arising out of the unlawful detention of four electricity generating vessels owned by the claimant and breaches of contractual obligations however a deal was struck with the company with the speculation that this may have been due to the actual as opposed to the on paper rental power agreement struck with some key members of the then PPP led government. In March 2012, a two-member bench led by Chief Justice Iftekhar Muhammad Chaudhary while hearing the suo motu case on rental power projects (Karkey was one of the projects) ruled that rules and regulations, including Public Procurement Regulatory Authority (PPRA), were violated in these projects due to which the projects were declared illegal.
In October 2018, a United Kingdom court of appeal rejected Pakistan's final plea, challenging the jurisdiction of the LCIA in a suit filed by nine independent power producers (IPPs) for the recovery of 11 billion rupee unpaid capacity payments from the government-owned National Transmission and Despatch Company (NTDCL). The MoU signed with the IPPs recently, not yet legally binding, envisages savings of 836 billion rupees over 28 years; however, the government must first clear their dues of around 400 billion rupees.
Of serious concern to the country's law makers must be the fact that international arbitration decisions have been at odds with the decisions taken by the local courts prompting legal experts to recommend local courts desist from adjudicating on such matters. In addition, the input of law enforcement agencies including National Accountability Bureau (NAB) and Federal Board of Revenue (FBR) in such cases has been far from impressive. At present, Pakistan is currently facing more than 40 cases of different natures at international courts. It is critical for the government to formulate a law to standardize contracts as well as the choice of arbitration framework.
Other obvious lessons learned by now should prompt the government to take the following appropriate actions: (i) develop legal institutional capacity to formulate a standard contract that protects the country from future litigation rather than tailoring each contract to meet the needs of a prospective investor on the plea that otherwise foreign investment would not be forthcoming; (ii) develop legal capacity to fight such cases at international fora rather than hiring foreign legal firms at exorbitant fees. In the Karkey case alone over 1.5 billion rupee legal fees was paid by the government; (iii) it must be kept in mind that a confidentiality clause as in the case of LNG contract with Qatar bars legal experts from pointing out possible weakness of a contract in time; (iv) PPRA rules must be adhered to as administrations' rationale that it saves time and/or meets our foreign policy objectives and/or without which the foreign investor is not interested in investing simply opens the door to domestic litigation as well as opposition allegations of kickbacks and corruption; (v) proactive actions must be taken against investors who fail to meet the timelines instead of granting extensions as has been the practice; (vi) a level playing field must always be provided to local firms and tax exemptions must be across the board to ensure that the tax structure is not anomalous; and (vii) a national political consensus must be developed and there should be no haste in the launch of mega projects for example the Khan administration is considering signing on the very ambitious 5 trillion rupee Ravi project which was considered and abandoned by the Shahbaz Sharif administration because it was financially unviable; and finally privatization too must be openly discussed - in parliament and publicly - to ensure that all are on board.
Copyright Business Recorder, 2020
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