147MW hydropower project: PD, NTDC should ink ‘standstill pact’ with Star: AG’s Office

ISLAMABAD: The Attorney General’s Office has proposed that Power Division and National Transmission and Despatch Company (NTDC) should enter into a standstill agreement with 147 MW Star Hydro Power Limited to settle all matters with consensus, well-informed sources told Business Recorder.

The AGP Office, sources said, floated this proposal of Power Division of April 24, 2024 and its own letter of April 29, 2024. While citing the previous letter written to Power Division and NTDC, AGP Office asked both Power Division and NTDC to, if all matters are negotiated with Star Hydro within a mutually agreed upon timeframe, enter into a standstill agreement between the parties to the dispute for final settlement of any and all claims emanating from the arbitral award.

“This strategy may be taken into account by Power Division and NTDC whilst entering into negotiations with Star Hydro. The AGP Office stands ready to assist in the matter if so required,” Zohair Waheed, Consultant AGP Office, wrote in his letter to Secretary Law and Justice.

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On April 26, 2024, Attorney General Office had advised Power Division and NTDC to negotiate with M/s Star Hydro to settle the arbitration award to mitigate risk of MIGA guarantee called by the project company.

The AG Office, sources said, referred to the letter of April 24, 2024 sent by the Power Division requesting an opinion from AG Office on the potential liability and legal strategy for the Government of Pakistan (GoP) if the MIGA guarantee is called on by Star Hydro pursuant to the arbitration award rendered against GoP under the sovereign guarantee of April 17, 2024.

According to the AG Office, its letter of December 26, 2023 had advised Power Division and the National Transmission and Despatch Company to consider honouring payment of the first arbitration award in light of the serious reputational risks for the GoP if the MIGA guarantee is called upon by Star Hydro.

The sources said the issue of Star Hydro was also discussed at the Prime Minister Office to find out a way forward. The AG Office argued that in light of the meeting held in the Prime Minister’s Office on April 25, 2024, it once again advised Power Division and NTDC to negotiate with Star Hydro to settle the arbitration award to mitigate any risks of MIGA guarantee being called upon by Star Hydro.

The project is a 147 MW run-of-the-river hydropower plant situated 120 kms north-east of Islamabad in the territory of Pakistan on the Kunhar River under a 30-year Build-Own-Operate-Transfer (BOOT) scheme. MIGA provides breach of contract over a South Korean equity investor in the project, KDS Hydro Pte Ltd (the guarantee holder) for its equity investment in Star Hydro Power Limited.

On April 17, 2024, the arbitrator rendered an award (the GoP Guarantee Award) against Pakistan and in favour of Star Hydro under the GoP Guarantee as follows: (i) first, ordering Pakistan to pay the outstanding amounts to Star Hydro within 21 days; (ii) second, ordering Pakistan to pay to Star Hydro interest at a simple annual rate of 8% per annum from the date the payments became due; and further ordering Pakistan and Star Hydro to endeavor to reach an agreement on the amount of interest within 21 days, failing which the parties should file further submissions to the arbitrator setting out their respective interest calculations; and (iii) third, ordering the parties to file submissions on the allocation of costs of the arbitration within 21 days following which the arbitrator will issue a separate award as to the costs of the arbitration.

Copyright Business Recorder, 2024